Carbon Hunters: Reflections and Forecasts of Climate Markets in the 21st Century

Why It Matters

Effective climate markets translate environmental goals into tradable assets, unlocking financing and accelerating emissions reductions for businesses and governments.

Key Takeaways

• Well-defined property rights create scarcity for pollution markets.
• Legislative caps and private contracts drive functional carbon trading.
• Continuous emission monitoring reduces information asymmetry in allowances.
• Financial innovation mirrors commodity contracts to price environmental assets.
• Market design influences liquidity and effectiveness of climate solutions.

Summary

The seminar featured Richard Sandor, a pioneer of environmental finance, discussing his new book “Carbon Hunters.” He framed climate markets as extensions of classic commodity trading, emphasizing that well‑defined property rights and scarcity are the foundation for any functional pollution market.

Sandor outlined his CITE framework—scarcity, choice, incentives, transaction costs, expectations, diversification—as the minimal ingredients for market design. He argued that the state must establish caps and registries, while the private sector creates contracts and exchanges that translate those caps into tradable instruments with low transaction costs.

He illustrated the concept with the 1990 Acid Rain program, where continuous emission monitors provided real‑time data, enabling an auction‑based sulfur‑dioxide allowance market on the Chicago Board of Trade. The same principles now underpin carbon‑credit futures, with nuanced contracts distinguishing fossil‑fuel emissions, refrigerants, and negative‑emission removals.

The discussion underscores that well‑engineered climate markets can mobilize private capital, lower compliance costs, and deliver measurable emissions reductions, making them essential tools for policymakers and investors navigating the transition to a low‑carbon economy.

Original Description

In this Energy Policy Seminar, Richard Sandor, CEO of Environmental Financial Products and Aaron Director Lecturer in Law and Economics at the University of Chicago Law School, joined Professor Joseph Aldy for a fireside chat to discuss Sandor's latest book (with Paula DiPerna), Carbon Hunters: Reflections and Forecasts of Climate Markets in the 21st Century.

More information: https://www.belfercenter.org/event/carbon-hunters-reflections-and-forecasts-climate-markets-21st-century

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ADDITIONAL REMARKS FROM RICHARD SANDOR

Intercontinental Exchange (ICE) purchased Climate Exchange PLC, the owner of the European Climate Exchange and the Chicago Climate Exchange (CCX) for £7.50/share in 2010, much of the value driven by the European Climate Exchange. The initial public offering (IPO) price was £1/share. The exchange had gone public in 2003 on the aim division of the London Stock Exchange; it was obviously a great financial success. The European management team and board Performed magnificently. A special shout out to the memory of Patrick Burley and his team. The board of the Climate Exchange including Klaus Gierstner, Sir Laurie Magnus and my dear departed friends Brian Williamson and Carole Brookins, were all incomparable.

While this story is told from the viewpoint of Richard Sandor and Paula DiPerna, CCX's success was truly a team effort. The credit goes to the entire staff and the board. Founding members of the board were Les Rosenthal, Maurice Strong, Governor James Thompson and Christine Todd-Whitman and Warren Batts. They were Olympic gold medal winners. The three original members of the team were Michael Walsh, Rafael Marques and Marilyn Grace. They were later joined by Murali Kanakasabai and Nathan Clark. Research, sales and marketing where everybody's job. Mike MacGregor and Dan Scarbrough led the efforts to establish the Chicago Climate Futures exchange. It was a great contributor to the success of the CCX. Rob McAndrew did an outstanding job managing the daily CO2 allowance market. All great businesses require legal and compliance excellence and Anne Cresce and Fran Kenck cannot be underestimated. Michael Stern, as manager of technology, did an excellent job and rounded out the infrastructure team. Kathy Lynn Minervino was the perfect complement to Ann, Fran and Michael. She managed the back office.

The management team and board of the Chicago Climate Exchange were the greatest of all time and left an indelible mark on environmental markets.

Most of the CCX team went on to form Incubex, a new environmental exchange. Others went on to be entrepreneurs and managers.

ICE, led by the incredible entrepreneur Jeff Sprecher, has maintained its preeminence in European and North American mandatory markets.

And finally, a special shout-out to John O’Connor of Battery Global Advisors and Andy Ertel of Restoration Climate.

As for Richard and Paula they continue to fan the embers of new environmental markets.