CKGSB Americas convened a summit on fintech and impactful investing on Nov. 8 in New York, with a keynote address delivered by climate-policy expert Paula DiPerna, on her work using financial markets to regulate carbon emissions and China’s emerging leadership in this area.
“Carbon markets return us to a super-basic business law, that of supply and demand,” DiPerna told attendees. “Demand by society for environmental stability in relation to the supply of space in our atmosphere available to maintain that stability.”
Market-based systems for regulating air pollution were first implemented by the United States to regulate sulphur dioxide (SO2), which causes smog and acid rain. The U.S. government sold permits that allowed energy utilities to emit SO2 at cumulatively safe levels. Companies could then trade these permits to control pollution in the most cost-effective manner.
There was hope that this system of “cap-and-trade” could be used in the U.S. to regulate carbon dioxide emissions, the pollutant responsible for climate change. In the 2000s, DiPerma served as president of the Chicago Climate Exchange (CCX), a voluntary cap-and-trade market.
But companies abandoned the project after the 2008 financial crisis and as the politics of climate change in the United States turned bitterly partisan, making government endorsement of the exchange unlikely.
Today, “all eyes are on China” to take the leadership in carbon regulation, with a national cap and trade system to take effect next year, DiPerma said. She described her role in helping launch China’s first pilot carbon market in Tianjin in 2008, while president of CCX.
“We negotiated the joint venture between PetroChina and Tianjin in record time, because the highest officials in China already well understood carbon markets and cap and trade,” she said. “In fact, China is about to rescue the tool the U.S. invented and subsequently abandoned.”
While the U.S. government continues to retreat from its commitments to combat climate change, China is pressing forward with its plans to create a national market for carbon, which “will be the largest commodities market in the history of the world if it goes economy-wide” DiPerna said.