Green may be the hue of environmentalism, but it's still the color of money to the Chicago futures exchanges vying for control of the nascent trading market in carbon emission credits.
CME Group Inc., the world's largest futures exchange, and the Chicago Climate Exchange, led by Richard Sandor, inventor of bond futures, are both angling to dominate a market that could generate $120 billion in carbon-credit trading annually if a so-called cap-and-trade system becomes the law of the land.
“We are talking about what will be the biggest commodity ever traded,” said Mr. Sandor, executive chairman of London-based Climate Exchange PLC, which owns the Chicago exchange. At 6 billion metric tons, the U.S. carbon emissions market is expected to be about three times the size of the European market, where another of Mr. Sandor's exchanges dominates trading. “Every time a mandated market has come through, it's provided us enormous opportunities.”
Such a mandate is in climate legislation that passed the U.S. House last month; the bill faces a tough fight in the Senate, but the Obama administration supports so-called cap-and-trade regulations as a way to reduce global warming.
Passage of the legislation would set off a furious race between Mr. Sandor's Chicago Climate Futures Exchange and CME. The Climate Exchange has an early lead — it handles the lion's share of carbon credits trading under the Regional Greenhouse Gas Initiative, the nation's first mandatory carbon-emissions reduction program. It also dominates across the pond, where Mr. Sandor's European Climate Exchange has an 87% market share in futures on European emissions permit trading.
And Mr. Sandor brings deep experience: He helped design the U.S. Environmental Protection Agency's acid-rain reduction program, launched with the 1990 Clean Air Act and credited with driving down emissions of acid-rain producing sulfur dioxide. In 2003, he built the Chicago Climate Exchange, the first U.S. voluntary carbon emissions market.