Carbon Market Design: Issues and Opportunities: Bios and Abstracts

Dallas Burtraw

Dallas Burtraw's research includes the design of environmental regulation, the costs and benefits of environmental regulation, and the regulation of the electricity industry. Burtraw recently estimated the change in value of electricity generation companies, and the incidence of cost on households, of alternative approaches to implementing carbon dioxide (CO2) emissions trading programs in the United States. He has examined the cost-effectiveness of trading programs for nitrogen and sulfur dioxide in the U.S., and of CO2 emissions trading in the EU. He also has conducted integrated assessment modeling of nitrogen and sulfur dioxide emissions from the power sector including health and ecosystem effects and valuation. Burtraw holds a Ph.D. in economics and a master's degree in public policy from the University of Michigan and a bachelor's degree from the University of California, Davis.

Lessons from Existing Environmental Markets for the Design of Climate Policy
Abstract: The "grand experiment" with trading of sulfur dioxide emissions allowances under the 1990 Clean Air Act was the first time policy makers seriously followed economists' advice about the efficient design of environmental policy. Since that time, policymakers have gained experience with a variety of environmental markets, especially pertaining to regulation of air pollution including nitrogen oxides and carbon dioxide, involving billions of dollars in annual value. In general, the performance of the incentive-based approach to environmental regulation has been extremely positive with respect to the attainment of explicit environmental goals; nonetheless, the environmental outcome depends on regulatory decisions about the stringency of those environmental goals. In addition, economists have learned how the design of emissions trading programs affects the efficiency of markets and their distributional effects, and these lessons are apparent in the design of state and regional programs. For instance, the northeast Regional Greenhouse Gas Initiative directs most of the value of emissions allowances to help achieve program-related goals through investments in energy efficiency. The auction design in this program has ensured that a minimal amount of emission reductions occur and that funds continue to be available for energy efficiency even during fluctuations in overall economic activity. In California, the allocation of emissions allowances is designed to minimize the change in product prices during a several-year transition period in order to avoid economic locations that might occur from sudden price changes.

Peter Cramton

Peter Cramton is Professor of Economics at the University of Maryland. Since 1983, he has conducted research on auction theory and practice. This research appears in the leading economics journals. The main focus is the design of auctions for many related items. Applications include spectrum auctions, electricity auctions, and treasury auctions. On the practical side, he is Chairman of Market Design Inc., an economics consultancy founded in 1995, focusing on the design of auction markets. He also is Founder and Chairman of Cramton Associates LLC, which since 1993 has provided expert advice on auctions and market design. Since 2001, he has played a lead role in the design and implementation of electricity auctions in France and Belgium, gas auctions in Germany, and the world's first auction for greenhouse gas emissions held in the UK in 2002. He has advised numerous governments on market design and has advised dozens of bidders in high-stake auction markets. Since 1997, he has advised ISO New England on electricity market design and was a lead designer of New England's forward capacity auction. He led the design of electricity and gas markets in Colombia, including the Firm Energy Market, the Forward Energy Market, and the Long-term Gas Market. Since June 2006, he played a leading role in the design and development of Ofcom's spectrum auctions in the UK. He has advised the UK, the US, and Australia on greenhouse gas auction design. He led the development of the FAA's airport slot auctions for the New York City airports. He received his B.S. in Engineering from Cornell University and his Ph.D. in Business from Stanford University.

Alternatives to Quantity-based Climate Policy
Abstract: Greenhouse gas abatement is a public good, so climate policy is a public-goods game and suffers from the free-rider incentives that make the outcome of such games notoriously uncooperative. Adopting an international agreement can change the nature of the game, reducing or exacerbating the uncooperative tendencies of the players. Alternative international agreements differ in their incentives for cooperation in the public-goods game. The addition of cap-and-trade rules to the basic public-goods game is found to polarize the free-rider incentives of that game, encouraging those who would abate the most to target even higher abatement levels and those who would abate the least to target lower, and even negative, abatement levels. Such polarization between developed and developing countries is familiar from both the Kyoto and Copenhagen climate summits. Since cap-and-trade rules decrease cooperation by developing countries, developed countries are led to reject the game's outcome and in the process prevent agreement on a set of quantity targets. To break this deadlock and shift the equilibrium toward cooperation, a modification of the public-goods game based on price rather than quantities is needed. This involves a global price target and equity transfers via a Green Fund that rewards adoption of and compliance with such a target. The Nash equilibrium of one such game is analyzed for a group of three countries similar to the United States, China and India. Professor Cramton's work on climate policy is available at www.cramton.umd.edu/papers/climate.

Jim Kharouf

Jim Kharouf serves as editor and co-founder of the Environmental Markets Newsletter and editor-in-chief of John J. Lothian & Co., a markets media company that provides intelligence newsletters as well as MarketsWiki.com, a premier source of information about the financial markets.

He co-founded Environmental Markets Newsletter in May 2006 and is among the leading journalists who follow this market. Mr. Kharouf also has spoken and taught individuals about various aspects of the global emissions markets.

He has been a reporter and editor since 1989 covering all aspects of business from stock, options and futures markets to real estate. He has worked for daily, weekly and monthly publications in North Carolina, Chicago and Budapest, Hungary.

He graduated from Marquette University in 1989 with Bachelor of Arts degrees in journalism and political science. He resides and works in Chicago.

Carbon Markets Marketing
Abstract: In the aftermath of the failed attempt in Congress to pass a carbon cap-and-trade bill, one thing became clear. That the public, politicians and the media did not really understand the concept of carbon markets. Instead, opposition labeled cap-and-trade as a tax and supporters tried to tout the subsequent job creation component. Learning some of the key components of cap-and-trade may help in getting the proper messaging out about how these markets work and ultimately, what they do. Carbon markets in the European Union as well as regional markets in the U.S. illustrate the strengths and weaknesses of such commodities markets and provide a guide on what carbon markets can achieve. Proper system design is crucial to the overall effectiveness and pricing of carbon as a commodity. The key underlying factor, however, is clear communication.

Albert S. “Pete” Kyle

Professor Albert S. (Pete) Kyle has been the Charles E. Smith Chair Professor of Finance at the University of Maryland's Robert H. Smith School of Business since 2006. He earned his B.S. degree in mathematics from Davidson College (summa cum laude, 1974), studied philosophy and economics at Oxford University as a Rhodes Scholar from Texas (1974-1977), and completed his Ph.D. in economics at the University of Chicago in 1981. He has been a professor at Princeton University (1981-1987), the University of California Berkeley (1987-1992), and Duke University (1992-2006).

Professor Kyle's research focuses on market microstructure, including topics such as informed speculative trading, market manipulation, price volatility, the information content of market prices, market liquidity, and contagion. His current research also deals with concepts from industrial organization to value companies.

His teaching interests include market microstructure, institutional asset management, venture capital and private equity, corporate finance, option pricing, and asset pricing.

He has been a Fellow of the Econometric Society (2002), a board member of the American Finance Association (2004-2006), a staff member of the Presidential Task Force on Market Mechanisms (Brady Commission, 1987), a member of NASDAQ's economic advisory board (2004-2007), a member of the FINRA economic advisory committee (since 2010), and a member of the CFTC's Technology Advisory Committee (since 2010).

Tom Lewis

Tom Lewis is a proven leader in financial markets and the technology sector, as well as a pioneer in the development of environmental trading markets and corporate sustainable development. His experience spans environmental securities and clean energy finance, wholesale power, brokerage, investment banking, credit and charge card services, travel services, data and information services, software, insurance, hospitality, the federal government, and higher education.

Immediately prior to his appointment as Chief Executive Officer of GreenX, Mr. Lewis was the founder of Tom Lewis & Co., a consulting firm that assisted companies in gaining economic leverage where technology is central to the success of the business. Mr. Lewis also served as an executive in residence and assistant professor of environmental finance at the Johns Hopkins Carey Business School of the Johns Hopkins University. He was responsible for creating a new MBA course at the business school in environmental finance, which is one of the first of its kind in the nation. Mr. Lewis remains a member of the corporate advisory board of the Johns Hopkins Carey Business School.

In addition, Mr. Lewis was a general partner of Roomtag, LLC, a provider of breakthrough technology for commercial office space and asset management. Mr. Lewis was also on the Board of Directors of the New York-based environmental and energy financial services firm, Evolution Markets Inc.

Formerly, Mr. Lewis was chairman and CEO of APX, Inc. from 2003-2007, where he successfully led a four-year turnaround and repositioning of the company as the leader in technology infrastructure for renewable energy and environmental commodities in every major market in the U.S., Canada and Mexico. Under his leadership the company went from extensive losses over a six-year period to growth, profitability, a successful new market position, and funding from a leading investment bank.

Mr. Lewis was CEO of Ameritrade Holding Corporation (now TD Ameritrade), where he successfully rebuilt the company's technology and operations systems, and launched an awardwinning consumer advertising campaign to capture the self-directed, on-line trading market. Mr. Lewis was also the director of technology for the Executive Office of the President of the United States at the White House under the Ronald Reagan Administration, where he received the highest civilian award, the Distinguished Service Award of the Office of Administration.

Mr. Lewis holds an honorary doctorate, a master's degree in computer and information science, and a bachelor's degree, magna cum laude, in business administration from the University of New Haven in Connecticut, where he has also been honored as a distinguished alumnus. He currently serves as chairman of the Board of Trustees of the Henry Lee Institute of Forensic Science and a member of the Board of Trustees of the University of New Haven. He has taught at California Polytechnic University (Pomona), California State University (Dominguez Hills), and the University of New Haven, and has lectured at Cornell University.

The Role of Exchanges in Global Environmental Markets: Confidence, Stability, Transparency
Abstract: Companies face new risks, challenges, and opportunities as carbon legislation and regulations begin to be deployed around the globe. Without clear price signals, companies are unable or unwilling to efficiently allocate capital to meet these new needs. Exchanges promote the investment of capital and will lead to greater investment in U.S. businesses by allowing the market to establish pricing, which improves advance planning for costs. Exchanges also provide healthy safe environments for hedging risk and capital investment in carbon and other commodity markets and can be a stabilizing force during periods of regulatory or other changes. Regulators and exchanges should work hand in hand to provide certainty and transparency to the existing and upcoming environmental markets.

Dave Miller

David Miller is director of research and commodity services for the Iowa Farm Bureau Federation. In this position, he coordinates the research programs of the Iowa Farm Bureau and the various commodity services offered by the Federation. He provides economic analysis of agricultural issues. He is a primary liaison for the Federation with state and national commodity organizations.

Miller has served on several state, regional and national boards or committees including the National Institute of Animal Agriculture, the Extension Section of the American Agricultural Economics Association, the U.S. Meat Export Federation, the Offset Committee of the Chicago Climate Exchange, The Midwest Governor's Association Greenhouse Gas Accord committee, and the Iowa Climate Change Advisory Council.

Miller joined IFBF in April 1998 as director of commodity services. Prior to working for the Iowa Farm Bureau Federation, Miller served as a commodity policy specialist for the American Farm Bureau. Miller is active in production agriculture, operating a 630 acre grain farm in southern Iowa. David and his wife, Dianne, have been married for more than 40 years. They have 8 children and 15 grandchildren. They live in Ankeny, IA.

Agricultural Carbon Credits: Lessons Learned from the AgraGate Experience
Abstract: The Chicago Climate Exchange (CCX) voluntary carbon markets began operation in 2003. CCX developed the first scalable agricultural carbon credit protocols and a number of aggregators facilitated the participation of nearly 10,000 farmers and forestry owners in the CCX program. Through participation in the CCX programs, more than 20 million tons of carbon emissions were reduced or sequestered. These new programs offered opportunities for market-based solutions to an environmental issue. Much was learned about the design of viable protocols for agricultural carbon credits and what may be required for large-scale participation of agricultural producers in carbon programs. This presentation will cover a number of the things that AgraGate learned as a large-scale aggregator of agricultural carbon credits.

Adele Morris

Adele Morris is a Fellow and Policy Director for Climate and Energy Economics at The Brookings Institution. Her expertise and interests include the economics of policies related to climate change, energy, natural resources, and public finance.

She joined Brookings in July 2008 from the Joint Economic Committee (JEC) of the U.S. Congress, where she spent a year as a Senior Economist covering energy and climate issues.

Before the JEC, Adele served nine years with the U.S. Treasury Department as its chief natural resource economist, working on climate, energy, agriculture, and radio spectrum issues. On assignment to the U.S. Department of State in 2000, she was the lead U.S. negotiator on land use and forestry issues in the international climate change treaty process. Prior to joining the Treasury, she served as the Senior Economist for environmental affairs at the President's Council of Economic Advisers during the development of the Kyoto Protocol. She began her career at the Office of Management and Budget, where she conducted regulatory oversight of agriculture and natural resource agencies. She holds a Ph.D. in Economics from Princeton University, an M.S. in Mathematics from the University of Utah, and a B.A. from Rice University.

Tradeoff Between Permits and Offsets
This presentation will explain what an offset is, outline the differences between the voluntary and regulatory markets, and explain the theory of how offsets control costs of a cap-and-trade program. It will cover what drives supply and demand for offsets, and explain the policy and governance challenges to making offsets work reliably. Illustrative modeling results will show how offsets can reduce the cost of cap-and-trade programs.

Perry Sadorsky

Perry Sadorsky is an Associate Professor in the Schulich School of Business at York University in Toronto where he teaches business students at both the undergraduate and graduate (MBA) level. His current research interests include: energy and the natural environment, financial markets and the economy, corporate commitment to the natural environment, and, the relationship between business performance, innovation and sustainability. He has published extensively in these areas. He has been involved in several international organizations and international working groups. He is currently Treasurer of the Organizations and the Natural Environment Division of the Academy of Management. He holds a BSc (Honors) in Physics and Astronomy and an MA in Economics from the University of British Columbia and a PhD in Economics from Queen's University.

Oil Prices and the Carbon Market
Abstract: The trading of carbon emissions has resulted in a new class of financial products which are expected to grow in importance as climate change mitigation initiatives develop. Investigating the dynamic interaction between carbon prices and other markets like oil prices and stock prices is important to understanding how carbon markets interact with other financial markets. This paper investigates the dynamic interaction between Chicago Climate Exchange (CCX) carbon futures prices, oil prices and stock prices. Simulation results indicate that carbon prices do respond positively to shocks to oil prices but the effect is not very significant. A shock to stock prices has an initial negative impact on carbon prices. These results should be useful to policy makers, portfolio managers and others interested in this rapidly developing field of finance.

Richard Sandor

Richard L. Sandor is Chairman and Chief Executive Officer of Environmental Financial Products LLC, which specializes in inventing, designing, and developing new financial markets with a special emphasis on investment advisory services. EFP was established in 1998 and was the predecessor company and incubator to the Chicago Climate Exchange (CCX), the European Climate Exchange (ECX) and the Chicago Climate Futures Exchange (CCFE).

A financial innovator known as the “father of financial futures,” he has been at the epicenter of environmental and financial markets for more than four decades. He founded what became the Climate Exchange family of companies including: the Chicago Climate Exchange (CCX), the world's first and North America's only voluntary, legally binding greenhouse gas cap-and-trade system; the Chicago Climate Futures Exchange (CCFE), the world's leading futures exchange for environmental products; and the European Climate Exchange (ECX), Europe's leading exchange operating in the European Union Emissions Trading Scheme. Additional global affiliates included the Tianjin Climate Exchange in China, the Montreal Climate Exchange in Canada and Envex in Australia.

Sandor is a Distinguished Professor of Environmental Finance at Guanghua School of Management at Peking University and a research professor at the Kellogg Graduate School of Management at Northwestern University. He is a Member of the International Advisory Council of Guanghua School of Management at Peking University and a member of the TERI School of Management Advisory Committee in India. Sandor previously taught at the University of California Berkeley, Stanford University, and Columbia University Graduate School of Business.

While on sabbatical from Berkeley in the early 1970s he served as vice president and chief economist of the Chicago Board of Trade (CBOT). It was at that time that he earned the reputation as the principal architect of the interest-rate futures market. Sandor was honored by the City of Chicago in 1992 for his contribution to the creation of financial futures and his recognition as the "father of financial futures.” In October 2007, Dr. Sandor was honored as one of TIME Magazine's “Heroes of the Environment” for his work as the “Father of Carbon Trading.”

In August 2002 Dr. Sandor was first chosen by Time magazine as one of its "Heroes for the Planet" for his work as the founder of the Chicago Climate Exchange. In November 2004, Dr. Sandor was the recipient of an honorary degree of Doctor of Science, honoris causa, by the Swiss Federal Institute of Technology (ETH) of Zurich, Switzerland for his pioneer work in the design and implementation of innovative and flexible market-based mechanisms to address environmental concerns. In May 2005, Dr. Sandor was named by “Treasury and Risk Management” magazine as one of the “100 Most Influential People in Finance”. He is also the recipient of the 2008 Financial Management Association's Outstanding Financial Executive Award, the Ernst & Young's Entrepreneur of the Year 2009 Award in the “green” category, and was honored by the Environmental Markets Association with its 2010 John H. Dales Memorial Leadership in Environmental Markets Award.

Sandor has served on numerous committees and boards. He assisted the New York Mercantile Exchange on the design of the options contract for crude oil. In 1992 Sandor was an expert advisor to the United Nations Conference on Trade and Development on tradable entitlements for the reduction of greenhouse gas emissions.

From 1991 to 1994, Sandor was Chairman of the CBOT Clean Air Committee. That committee developed the first spot and futures markets for sulfur dioxide emission allowances and supervised the annual allowance auctions conducted on behalf of the U.S. Environmental Protection Agency. He also served as Vice Chairman of the CBOT Insurance Committee and was the originator and co-author of the catastrophe and crop insurance futures and options contracts.

Prior to the creation of the Chicago Climate Exchange, Sandor was a senior financial markets executive with Kidder Peabody, Banque Indosuez and Drexel Burham Lambert. Sandor is currently a director of American Electric Power and The Volatility Exchange (VolX®).

Sandor received his Bachelor of Arts degree from the City University of New York, Brooklyn College, and earned his Ph.D. in Economics from the University of Minnesota in 1967. He is involved in numerous civic and charitable activities. He is a member of the Board of Governors of The School of the Art Institute of Chicago and is a Major Benefactor of the Art Institute of Chicago. He is also currently a member of the Board of Trustees of the International Center of Photography, New York.

Jonathan Schrag

Jonathan Schrag is the Executive Director of RGGI, Inc. Before RGGI, Jonathan was a partner of Hudson Strategic Energy Advisors LLC, where he worked with the state governments of Wyoming, West Virginia, and Montana and the Western Governors Association on energy, climate and the environment.

From 2005 to 2007, Jonathan was an Assistant Director of the Earth Institute at Columbia University and the Executive Director of the Lenfest Center for Sustainable Energy, where he ran policy research programs on carbon capture and sequestration, nuclear energy, carbon policy, and renewable energy technologies. Jonathan also served as Research Staff with the Global Roundtable on Climate Change and as a Research Associate for Columbia University's Center for Carbon Management.

Jonathan currently serves as a member of the Energy and Environmental markets Committee of the U.S. Commodity Futures Trading Commission, as a member of the Advisory Board of the New York City Accelerator for a Clean and Renewable Economy and as a fellow of the Institute for Urban Design.

Jonathan graduated from Harvard University and received a Fulbright scholarship for research in the history of electrification. He lives in New York City.

Kitty Smith

Katherine R. (Kitty) Smith is the Administrator of ERS. In this position she provides leadership and guidance on the research agenda, coordinates with agencies and institutions within and outside USDA, and contributes to USDA's science mission. She is a Fellow of the Agricultural and Applied Economics Association. As a research administrator, she has received the Presidential Rank Award for Meritorious Executives.

For the bulk of 2009, Kitty was USDA's Acting Deputy Under Secretary for Research, Education and Economics.

Previous positions in ERS include Director of the Market and Trade Economics Division, and Director of the Resource Economics Division. As a researcher and research manager, Kitty's principal areas of expertise have been policy analysis, particularly agricultural and resource policy integration, and the relationships among agricultural production and environmental quality. Her work is published in several books, a range of scholarly journals, USDA reports, and numerous popular outlets.

From 1993 to 1996, Kitty was Policy Studies Program Director for the Henry A. Wallace Institute for Alternative Agriculture. From 1989 to 1991, she was a Senior Fellow with Resources for the Future.

Kitty received a Ph.D. and an M.S. in agricultural and resource economics from the University of Maryland, where she also earned a B.S. with emphasis in the biological sciences.

Andrew Stocking

Andrew Stocking, Ph.D. is a market design economist at the Congressional Budget Office (CBO) working in the Microeconomic Studies Division. In this position he provides analysis of markets including auctions, their rules, and optimal design criteria in an effort to advance the mission of the CBO. During the past Congressional cycle, he managed the CBO model for scoring climate change legislation and has been heavily involved in the analysis of other markets as they arise in the policy debate, ranging from FCC spectrum auctions to financial markets to energy markets. Two papers recently published by the CBO include: Evaluating Limits on Participation and Transactions in Markets for Emissions Allowances and Working Paper 2010-06: Unintended Consequences of Price Controls: An Application to Allowance Markets.

Prior to the CBO from 2000-2005, Stocking was the VP Business Development for a fledgling internet startup called Care2 that provides online services to charitable giving organizations. In his five years of full time employment, he launched Care2's primary revenue source allowing the startup to grow to a team of 50, reach profitability, and continue as a viable entity to this day. That work continued on a part-time basis between 2005-2009 as he pursued his Ph.D. in resource economics at the University of Maryland. He has been published in Land Economics, Public Works Financing, Journal of the American Water Works Association, Journal of Environmental Engineering, and Science magazine as well as made appearances on NPR and Fox Business Network discussing market design. Stocking also holds a BS in chemical engineering and MS in environmental engineering, both from Stanford University.

Moderating Price Volatility
Abstract: Concern about climate change has led policymakers to consider establishing a cap-and-trade program to limit the emissions of greenhouse gases. Such a program has been implemented in ten Northeast states, the European Union, and soon California. In each program, the price of allowances would be expected to rise to the level necessary to ensure that the limit on cumulative emissions over the life of the policy (implied by the annual caps) was met. That price level depends crucially on a variety of factors, including the growth of the economy, demand for emission-intensive goods and services, and the development of new technologies to reduce emissions. This paper considers the potential effects of several program features that have been included in recent federal and state legislation to address policymakers' fears about unacceptably high or low price levels, excessive price volatility, manipulation and market transparency. Drawing on results from a model that the Congressional Budget Office developed to analyze legislative proposals as well as experience from other markets, this paper examines price ceilings, price floors, participation limits, and transaction limits with the objective of understanding how each constraint affects allowance prices and emissions under a GHG cap-and-trade program. This analysis demonstrates that the design features considered will alter patterns of prices and emissions and in some cases they may not achieve their stated objective and could exacerbate the concerns motivating their implementation.