Putting a price on climate change

Two U alumni presented theories on pricing and trading emissions.

by Emily Cutts

A new University of Minnesota institute opened Wednesday night with a debate on a hot topic: global warming.
Two University alumni presented an economic approach to the climate change issue Wednesday night at the opening of a new College of Liberal Arts institute.
Robert Litterman and Richard Sandor, both Department of Economics alumni, spoke at the premiere event for the Heller-Hurwicz Economics Institute, an economic theory think tank.
HHEI, which opened late last year, is a new initiative to both inform and influence public policy by providing a platform and support for economic research like Litterman and SandorâÄôs.
âÄúEconomics is one of the UniversityâÄôs great treasures,âÄù University President Bob Bruininks told the crowd. âÄúI am absolutely confident that if we work together and put our minds together to this great cause, that will make the institute a reality.âÄù
Introduced by Jon Foley, director of the Institute on the Environment, Litterman and Sandor spoke Wednesday about how economic policy can help to reduce climate change. About a hundred students, faculty and staff attended.
Sandor, the founder of Chicago Climate Exchange, a voluntary trading platform for greenhouse emissions, presented a plan of cap-and-trade financial incentives to cut emissions, which would set a price to carbon emission.
âÄúThe most important era of commoditization will be taking place now, and thatâÄôs of air and water,âÄù Sandor said. âÄúThese are our most valuable resources, and we have got to find a way to ration them.âÄù
Litterman, a retired managing partner of Goldman Sachs and an adviser with HHEI, presented a more economic and mathematical presentation on pricing climate risk.
âÄúCarbon emissions should be priced because âĦ they increase the risk of a climate disaster,âÄù Litterman said. âÄúNot pricing risk leads to too much risk being taken, and too much risk being taken leads to disasters.âÄù
While the speakers presented different ways of pricing carbon, they agreed that there needs to be a price.
âÄúIf we donâÄôt get a control of this climate,âÄù Sandor said, âÄúyou will unleash people who will make money from the lack of water, later of clean energy, and you will provide perverse incentives that are very dangerous.âÄù
Although it was only the first HHEI event, many similar lectures are planned for the future, with another to be held in April or May and an annual policy forum scheduled for October.
V.V. Chari, the founding director of HHEI, said that when he first planned the institute he was thinking small, but Bruininks encouraged him to expand that vision.
Chari said HHEI will help not only support economic research but disseminate the information, something that has previously been a struggle.
âÄúBy educating an informed citizen, we will eventually transform our policy,âÄù Chari said.