Carbon Market Maker

Fran Denmark reveals Dr. Graciela Chichilnisky’s latest scheme in her green mission.

Fran Denmark - Pursuing Green

Fran Denmark - Pursuing Green

Dr. Graciela Chichilnisky is on a mission to halt global warming. In fact, she has been fighting the good fight to lower global carbon emissions for the past two decades. The professor is perhaps best known for her role designing the carbon market in the Kyoto Protocol, the 1997 agreement aimed at fighting climate change, that grew out of the 1992 United Nations Framework Convention on Climate Change. “Energy is the mother of all markets,” says the professor, trim and authoritative in a black pants suit. Her enthusiasm is contagious.

To get the word out on her latest scheme to move the green dream forward prior to the upcoming climate change summit in Copenhagen, Chichilnisky dropped by Institutional Investor’s offices just off Union Square today, flak in tow.

Chichilnisky has been prescient enough to grab a place in the sweet spot where two major trends — the growth of financial engineering and the push for innovative solutions to global warming — are converging, and her excitement is palpable. She has come up with a second financial engineering solution to global warming that also promises to resolve the current Chinese-American cold war over carbon emissions.

The plan is relatively simple and is based upon a carbon market exchange. The U.S. and other developed countries would buy options from major developing countries like China. They would essentially be buying a right to call on their emission reductions in the future, under certain conditions, Chichilnisky says. The Chinese government can ensure a minimum price for the credits so as not to put too low a price on their economic growth.

Later that day she explained the plan to a luncheon co-sponsored by the Alliance of Small Island States and the Columbia (University) Consortium for Risk Management, which she heads, to deliver her message on the eve of the upcoming climate change summit in Copenhagen.

The professor of economics and statistics at Columbia would like everyone to know that the effects of global warming are well underway on the 43 small island states that represent five percent of the world’s population, and are more than 20 percent of the UN’s voting membership. That would include the Republic of Maldives, where President Mohamed Nasheed is buying up land in nearby India in anticipation of moving about 300,000 of its citizens before the rising Indian Ocean consumes his island nation. Chichilnisky stressed the point that several millions would have to be moved if the seawater levels continue to encroach on nations that include Grenada and Papua New Guinea.

“The U.S. is emitting 26 percent of the carbon. The risks are global but the worst go to the small island nations which together emit less than one percent,” Chichilnisky stresses. So she has set to work devising a plan that makes use of financial derivative instruments to resolve the impasse in carbon reduction that continues to drag on between the U.S. and China. The proposal also includes technical aspects that allow more energy to be produced while reducing carbon in the atmosphere. Exacerbating the problem is the fact that the Kyoto Protocol ensured that developing nations, of which China is one, are let out of the binding emissions-lowering agreements developed nations are held to.

“Like the old Cold War, each super power can destroy the world with carbon emissions,” she says.

Chichilnisky’s plan sounds actionable but the real test of its traction will come next month in Copenhagen — or, as some are calling it, Hopenhagen.

In her Pursuing Green blog, Frances Denmark, a financial journalist for 15 years, takes an in depth look at green investing. She provides additional coverage in her favorite subjects, including pensions, foundation and endowment investing, and women in alternative investments.