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Financial Times
May 18, 2000COMMODITIES & AGRICULTURE:
Broadly based US market proposed
CARBON EMISSIONS:
ACADEMICS TO DESIGN VOLUNTARY SYSTEM
FOR TRADING RIGHTS
By NIKKI TAIT
The US could get its first, broadly-based market for trading carbon emission rights, under a funding deal to be announced later today.
Academics at the Kellogg Graduate School of Management, at Northwestern University in Chicago, are being asked to design a voluntary mechanism for trading rights to carbon dioxide emissions.
If they come up with a viable proposal, a pilot programme could be implemented next year.
Carbon dioxide emissions, which occur when fuels such as coal and gas are burnt, are blamed for "global warming" and associated environmental disruption.
About 160 nations have agreed to stabilise emissions voluntarily and in 1997 created the Kyoto Protocol.
This set a 15-year time-frame for reducing emissions below 1990 levels, and sketched out provisions for using trading mechanisms to help achieve these goals. But subsequent progress has been slow and the US has yet to ratify the protocol.
The Chicago Board of Trade has a limited system for trading sulphur dioxide emission credits at annual auctions. There are also private deals whereby utilities pay farmers not to till their soil (retaining the carbon dioxide), a venture linking Australian forestry interests and the Sydney Futures Exchange and a pilot trading scheme on the Paris Bourse.
The latest project is being backed by the 1bn-Dollars Joyce Foundation, which is based in Chicago and focuses on public policy in the Great Lakes region.
It will be spearheaded by Richard Sandor, who runs Environmental Financial Products but is better known as a designer of the interest rate derivatives, which have come to dominate the world's futures exchanges.
Mr Sandor argues that the Midwest is an ideal trial ground for the project because it contains big industrial and agricultural interests, and accounts for about 25 per cent of US manufacturing capacity.
One of the largest companies in the region is BP Amoco, which already has introduced an internal, company-wide trading system.
Part of the design work will be subcontracted to consultants, such as PricewaterhouseCoopers, which have expertise in this area, and the project will be overseen by an advisory panel.