"A big chunk of the action occurs on an exchange founded by Mr. Sandor, a one-time Berkeley professor who has morphed into a gregarious climate change entrepreneur.

"He’s among the most successful investors trying to profit from rising environmental awareness, whether by speculating in energy commodities or launching wind-power companies. Last year, the total value of carbon permits changing hands – whether on public exchanges or in private, off-market transactionism where most still occur, nearly doubled to 40 billion euros, or about $60B, according to Oslo-based Point Carbon, a market research firm.

"Yesterday Climate Exchange stock jumped 16% after the firm reported as tripling in 2007 revenue to 13.6 million pounds sterling. That gives the company which handles 90% of the trading on carbon exchanges, a market capacity of about $1.31 billion. Mr. Sandor’s stake is worth more than $260 million on paper.

"It’s an unusual mix of market theory and environmentalism. ‘The right-wing always suspects you of being a tree-hugging environmentalist and the left wing accuses you of being a money-grubbing capitalist,’ says Mr. Sandor who back in the 1990s developed a market-based system to cut down on pollutants causing acid rain.

"Carbon trading is drawing intense interest from rivals. In January NYSE Euronext launched its own carbon exchange, bringing the total number to at least eight globally. Citing ‘huge growth potential,’ the New York Mercantile Exchange plans to enter the field in this year’s first quarter.

"The next big battlefield will be in the US, where Congress is currently debating setting up a system for regulating greenhouse-gas emissions. Lawmakers are considering a system like the one created by the 1997 Kyoto Protocol, a global United Nations-sponsored accord that set emissions-cutting targets for the 175 nations that ratified it. Europe’s program was an early test-run of the Kyoto Protocol, whose emission restrictions began hitting industry this year.

‘The US hasn’t ratified Kyoto. But all three leading Democratic and Republican candidates say they want the US to do more to fight climate change, and would likely set up a carbon-trading program."

"Carbon permits are traded very much like physical commodities – gold, oil, or pork bellies. Each government-issued permit grants its holder permission to emit a ton of carbon dioxide into the air. Carbon Exchange makes money by taking a commission on each trade and by charging membership fees.

"Governments set emissions caps, and companies that beat them can trade their pollution credits to other firms willing to pay to pollute. Over time, the caps are lowered, making it costlier to choose to keep polluting.

"About 70% of carbon permits still change hands off the market, in private transactions between companies or financial institutions. Trading on an exchange is often more efficient than trying to find a buyer or seller alone. But for bigger trades, many companies and banks still prefer to do private deals so they don’t tip off competitors or cause drastic swings in the still-nascent market.

"Still, Mr. Sandor’s exchange is a key piece of the financial infrastructure underpinning the system. It gives these companies – mainly industrial giants like power generators, steel mills and cement makers – a clear idea of the market price well off into the future. It also lets hedge funds and others investors speculate in the permits just as they would in other assets, such as gold or stock.

"Some economists argue for taxing polluters instead, including Nobel prize-winning economist Joseph Stiglitz, and former chairman of president Bush’s Council of Economic Advisors, Gregory Mankiv. A carbon tax would be more transparent and less vulnerable to lobbying by industries trying to win higher caps for themselves. "Last month, a report by the Congressional Budget Office said a carbon tax could achieve the same emissions reduction ‘at a fraction of the costs’ of a cap-and-trade system.

"Other criticisms of carbon trading focus on the financial wizards – such as Mr. Sandor – who design and run the markets. ‘Resources are being redistributed to the banks and traders rather than paying for technological innovations to cut emissions,’ says Carlo Stagnato of the Italy-based economic think-take, Istituto Bruno Leoni, who just published a paper on the European Union’s emissions-trading system.

"The system which has been up and running only three years in Europe, hasn’t yet produced big reductions in emissions. But carbon trading has boomed – handing a tidy profit to banks, traders, and exchanges such as the one founded by Mr. Sandor. Power companies, and heavy industry trade carbon continuously to make profit off price fluctuations and to hedge their future risk, as well as comply with the Kyoto rules.

"Robert Stavins, an environmental economist at Harvard’s John F. Kennedy School of Economics, defends the role of financiers. ‘The only way we can fight climate change is if there is an opportunity for businesses and individuals to make a fortune off it,’ he said.

"That’s what Mr. Sandor has done. ‘I am a capitalist who runs a business and has to deliver to shareholders,’ he said during a recent interview at the Ritz Hotel in London. ‘I consider myself to be an environmentalist, but I divorce those sentiments from my day job.’

"He first envisioned a carbon market long before many people had heard of global warming. In 1992 at the United Nations Earth Summit in Rio de Janeiro, he presented an academic paper on how markets might be used to reduce carbon emissions.

"He assumed the US would sign on, too, so he founded the Chicago Climate Exchange in anticipation of a US carbon-trading boom. However, soon after taking office, the Bush administration declined to ratify Kyoto, arguing it would hurt US companies’ competitiveness because developing countries like China and India weren’t required to curb emissions.

Mr. Sandor’s dream fizzled. With no treaty, US companies wouldn’t be required to cut carbon emissions. He was left with a company that basically had no reason to exist. But rather than dumping it, he decided to convert the Chicago Climate Exchange into a system that companies could join to voluntarily reduce their admissions.

"By 2003, he teamed up with a friend in London, insurance executive Neil Eckert, to take everything learned in the US experiment and apply it in Europe, which was then gearing up its own trading system. So they set up a separate trading market in London, the European Climate Exchange.

"Mr. Sandor had an ace up his sleeve. He sat on the board of Intercontinental Exchange, or ICE, which operates Europe’s leading energy exchange. The ICE affiliation immediately put his exchange in front of Europe’s commodity traders.

"Europe’s carbon market continued to grow, and with it, Mr. Sandor’s company. In trading yesterday on London’s AIM, the 16% jump in its share price to $28.89 followed the company’s report that volumes grew on both the Chicago and London exchanges.

"Last December they signed a memorandum of understanding with China National Petroleum Corp. to explore setting an emissions-trading platform in Beijing. And in India the firm is exploring establishing a voluntary market like the one originally set up in Chicago a decade ago. ‘We view ambiguity as an opportunity, not as a deterrent,’ Mr. Sandor says."

– from Economic Reform, April 2008