MAY 18, 2000

FOR INFORMATION CONTACT: Laurie Glenn            (773) 832-9101
                                                                                        (312) 320-5698

                                                          Mary O’Connell (312) 782-2464

http://www.joycefdn.org
http://www.envifi.com

Joyce "Millennium Initiative" Funds Pilot
for First U.S. Carbon Trading Market

CHICAGO …. In the third of its new millennium grants, the Joyce Foundation is funding work to design the first U.S. market for the trading of carbon emissions. Carbon dioxide and other greenhouse gases are believed to be causing climate changes, such as global warming, that many scientists call the biggest environmental challenge facing the world at the start of the new millennium.

A one-year, $347,000 grant to the Kellogg Graduate School of Management at Northwestern University will fund internationally recognized financial innovator and trader Dr. Richard L. Sandor to carry out the design phase of a Midwest-based voluntary carbon trading market. Such a market has long been touted as a strategy that would rely on the private marketplace, rather than regulation, as the most efficient means to bring down emissions. This project will begin to test the premise in real-life trading conditions. If the design phase is successful, a second phase would set up the actual market and trading mechanism.

Sandor, a visiting scholar at the Kellogg Graduate School, is the chairman and CEO of Environmental Financial Products, L.L.C., which specializes in developing and trading in new environmental, financial and commodity markets. He is widely recognized as a founder of the interest rate derivatives markets, now traded worldwide, and has also designed innovative market-based environmental protection programs.

The grant to develop the voluntary carbon-trading scheme is one of a series of Joyce Millennium Initiatives being launched by the Chicago-based foundation this month. Ranging between $250,000 and $1 million, the grants are "intergenerational" -- intended to reinforce and carry forward landmark achievements of the twentieth century, as well as promote bold, change-oriented initiatives for the century to come.

"The unique moment of the Millenium offers us a twin opportunity: to reinforce invaluable concepts of the past that should not be lost to future generations, as well as to catalyze bold new actions that will shape the future," said Joyce President Paula DiPerna. "Climate change is a product of the Industrial Age, but society continues to irresponsibly place the resolution of the problem at the feet of the next generation. This project puts some of the responsibility back where it belongs – on those of us who are reaping the benefits of the earlier Industrial Age."

Carbon dioxide (CO₂) is released when fossil fuels such as coal and gas are burned to make electricity, run automobiles, and power other features of the industrial economy. Carbon dioxide traps the sun’s heat inside the earth’s atmosphere, much as a greenhouse traps warm air. "A carbon market lets firms collaborate to find the least expensive means for cutting pollution," said Sandor. "Prices from the emissions trading process help reveal the true cost of reducing emissions." Emissions trading markets have proven successful in efficiently reducing sulfur dioxide emissions, a byproduct of coal-burning power plants that causes acid rain.

"Markets offer a tool for producing more environmental protection at a lower cost to consumers," Sandor added. "The challenges of introducing a large emissions market are best addressed through a learning-by-doing approach in a pilot market. And the Midwest is the best place to do that. The seven states where Joyce grantmaking is concentrated contain approximately 25 percent of the U.S. manufacturing capacity and 19 percent of its population. The area is home to leading corporations in the automotive, energy, pharmaceutical, agribusiness and techological sectors, and it contains some of the largest organized futures markets and stock exchanges as well. In itself the Midwest is large enough to be a major industrial power. That means that any results of a pilot trading program are clearly scalable to the national and international levels."

Sandor will recruit an advisory panel to gather expert input on business and environmental aspects of the market. Key issues to be addressed in the design phase include identifying potential market participants, accounting for carbon emissions, developing the infrastructure for trading, and monitoring progress in reducing emissions.

Dennis Jennings, partner and leader of the Global Risk Management Solutions Group (Energy and Mining) at PricewaterhouseCoopers LLP, said: "This pilot program provides an excellent vehicle for U.S. industrial corporations to practically determine the most cost effective way for them to meet self imposed reductions of greenhouse gases."

The potential danger of carbon dioxide buildup in the atmosphere was first identified over a century ago. In recent years scientists have expressed increasing alarm over resulting changes in the earth’s climate, notably rising temperatures (global warming); the ten warmest years of the twentieth century all came after 1980, according to the U.S. Environmental Protection Agency. Studies also show an increase in precipitation, decrease in Arctic Sea ice and northern hemisphere snow levels, and a rise in sea level. Such changes, if left unchecked, could lead to coastal flooding, resurgence of such diseases as malaria and cholera, drought and erosion in some areas, plus loss of forests, crops and animal species that cannot adapt quickly enough to changing conditions – all of which could cause serious economic disruptions as well.

In 1990, the Intergovernmental Panel on Climate Change, a group of 2500 scientists convened by the United Nations, urged substantial reductions in global emissions of carbon dioxide and other "greenhouse gases" to prevent further disruptions. The United States and 142 other nations committed to voluntary stabilization of emissions at the 1992 Rio Summit, but failed to implement them. 1997 saw creation of the Kyoto Protocol, setting a fifteen-year time frame to reduce emissions below 1990 levels. The United States has signed but has not yet ratified the Kyoto agreement.

The grant to Kellogg Graduate School for development of the carbon-trading model was developed by Joyce Environment Program officer Margaret O’Dell. It is the second of the newly launched Joyce Millennium Initiatives being announced this month. Other grants include $525,000 to the Young Women’s Leadership Charter School of Chicago to develop a curriculum that addresses contemporary challenges in math and science teaching and redress the ongoing under-representation of women in math and science leadership; and $345,754 to UCLA to record and transmit the experiences of students of all races who reaped the benefits of the Supereme Court's Brown vs. Board of Education decision, which will have its fiftieth anniversary in 2004

Based in Chicago with assets of approximately $1 billion, the Joyce Foundation supports efforts to strengthen public policies in ways that improve the quality of life in the Great Lakes region (Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, and Wisconsin). It makes grants in Education, Employment, Environment, Gun Violence Prevention, Money and Politics, and Culture.