Sandor’s most recent innovation is related to carbon trading—he founded the Climate Exchange PLC (CLE) family of companies before eventually selling to the Intercontinental Exchange. It was a commercial success for him personally, but not a success in the United States in terms of creating a vibrant market for carbon emissions.
Sandor is still convinced the cap and trade methodology is the best way to handle pollution.
“China has seven pilot programs for trading emissions, and India just started a renewable energy program, which has gotten off to a fantastic start this year,” Sandor says. “You are going to see growth in both the capital markets and in environmental markets in China and India.”
As for as the United States, he says regional environmental markets will take the lead. “The leaders in these markets will be California and China. California, for good or bad, is the source for more innovative activity and disruptive technology and behaviors,” he says. “Bear in mind that California is the eighth biggest economy in the world and we have a very successful cap and trade program going on there. You cannot look to Washington, you’ve got to look at the states.”
He points out that both California and The Regional Greenhouse Gas Initiative (RGGI), a market based regulatory greenhouse gas initiative that includes nine Eastern and Mid-Atlantic states, are leading the way in the use of markets to solve social and environmental problems.
Sandor says that has always been the way of innovation—markets are developed regionally and then grow. “You will find one to two years from now the revolution in California at the state level coupled with the Asian governments is really going to be the defining characteristic of our time when we look at it in 2030,” he says. “The people who focus on a Federal solution in the United States are missing the point—innovation is occurring at the state and local levels and the federal government will imitate the success of the state and locals and not be the driver of policy. It is a mistake to look at Washington’s progress and see it as indicative of U.S. progress.”
On the great recession he says it is unclear whether Dodd-Frank rules will work. “We learned one important thing: No exchange failed, no counterparty risk; 78 exchanges in 35 countries no risk whatsoever from counterparties,” he says. “The question is how effectively government can take the model that has been developed by the futures industry and seamlessly and cost effectively implement it. The danger is if regulation and cost imposed will prevent or limit new entrants into the market and favor the big players over small players and new players.”
This is important as the growth of financial futures is proof that the leaders in finance at the time were not the ones with the innovative ideas for the future.
What Sandor has done over the years is show an ability to understand risk and forecast what risks we will face in the future, and then invent markets to handle that risk. As for the next 20 years he says water is going to be one of the big ones. “In the next decade you will see the recognition that water is the most important commodity in the world and markets are best suited for solving scarcity and quality of water issues.”
Sandor serves on the board for the Center for Financial stability, which is holding a conference in same location as Bretton Woods. “Bretton Woods created a new environment and the collapse of it created a new environment. We will look at what is needed in the next 20 years,” Sandor says.
When Futures published its initial issue in February 1972 it was apparent to Sandor that computers were the issue. He says, “What is apparent now is Asia, water [and] the development of markets in commodities that haven’t been invented yet, [like] intellectual property. It took 20 years after the invention of the personal computer to get to the web. If I look out now like I did in 1972 I would be looking at big data, computers, water and Asia. Those are the sound bites of the 21st century.