An American economist and entrepreneur widely credited as the “father of carbon trading” says the timing is right for Hong Kong to take another shot at developing a market for buying and selling carbon emissions. Dr Richard Sandor said markets and pricing would be key to tackling natural resource management and pollution issues from air to water. “The purpose of markets is to put up a price. I don’t know of anything else that alters behaviour more than price,” Sandor stressed in a public lecture at the University of Hong Kong, where he has taken up the post of honorary lecturer in the real estate and construction department. Hong Kong government aims to slash carbon emissions with 2030 action plan “This place has a huge amount of human capital and enormous expertise in the financial system and a market which the world’s future depends on,” he said. “If you marry environmental objectives with its well-developed financial system, I am very optimistic that it will, can and should be a laboratory for all of China.” Sandor helped develop the financial futures markets in the 1970s and in the 1980s and 1990s invented cap-and-trade programmes in the US for acid rain-inducing sulphur dioxide emissions. He said perceptions about climate change had progressed since the Hong Kong Stock Exchange first consulted the public on the idea of futures trading in carbon emissions reductions in 2009 – only for it to fizzle out after the consultation returned “no positive feedback”. If you look at the open interest in REC trading and carbon in California ... it is larger than gold and platinum trading Dr Richard Sandor, economist “It was too early. Climate change is more of a problem than it was then and every year we have more and more evidence of the damages and potential damages occurring,” he said. “We have an urgency around the world, including in China, that makes it very different today for Hong Kong than it was in 2009. “The timing is appropriate for Hong Kong to exhibit some leadership in this whole area.” Mainland China has opened pilot carbon trading markets in seven cities since 2013, with a nationwide cap and trade programme – expected to be the world’s biggest – set to open later this year. The central government of the world’s biggest energy consumer and emitter has pledged to cap its emissions around 2030. But Sandor drew attention to the mainland’s less publicised launch of an exchange for renewable energy certificates (RECs) for solar and wind power on July 1, calling it an “unspoken elephant in the room” that could have a potentially bigger impact than its carbon trading market. “If you look at the open interest in REC trading and carbon in California ... it is larger than gold and platinum trading,” he said. “[China’s] could have far more profound effects than anybody believes and nobody seems to be focusing on.” Hong Kong’s carbon emissions averaged about six tonnes per capita in 2014.” Sandor believed freshwater would be the “oil of the 21st century” and warranted similar cap and trade market solutions to regulate quality and quantity. “Just three continents, North America, South America and Europe are ‘long water’. The rest of the world including China is ‘short water’,” he said. Climate report to reveal government measures to meet 2030 targets outlined in CY Leung’s policy address Sandor’s ideas are influenced greatly by those of British economist Ronald Coase, whose famous theorem argued that if a trade was possible and transaction costs were low enough, private parties could bargain an efficient solution to “externalities” – costs of economic activity borne by others not involved in the economic activity, such as pollution – without government intervention. He has been an adviser to department’s Ronald Coase Centre for Property Rights Research. Environment undersecretary Christine Loh Kung-wai said Sandor’s innovations “inspired the world” and said the city was beginning to take heed of the “rapid area of development”. She said a market for trading energy savings, similar to that of Tokyo’s, could be considered. “In Hong Kong, we don’t have a tradition in this area, but we are beginning to pay attention,” Loh, a former commodities trader, said. Last May a report by the government’s advisory Financial Services Development Council noted that Hong Kong had many unique advantages to act as the green finance hub in Asia. According to the government’s latest climate change action report for 2030 and beyond, the Central Policy Unit is also supporting a research project to assess Hong Kong’s role in might play in emissions trading in light of the launch of the national scheme. Targets have been set to slash the city’s carbon intensity by 65 to 70 per cent by 2030 using 2005 as the base.