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“Sustainability is a great thing, but abating carbon is ultimately going to be a compliance obligation — a tax or a limit on quantity,” said Jon Anda ’80, a carbon financial markets specialist at Duke University, in a Jan. 11 talk to Kellogg students.

Jon Anda

‘A lot of uncertainty’ in energy issues

Jon Anda ’80 emphasizes the role of modern finance in developing climate policies

By Rachel Farrell

1/14/2010 - Contrary to popular opinion, the sustainability movement isn’t the answer to climate change — especially when it comes to carbon emissions, says Jon Anda ’80.

“I have this issue with sustainability,” said Anda during his Jan. 11 visit to Northwestern University’s Kellogg School. “I think sustainability is a great thing, but abating carbon is ultimately going to be a compliance obligation — a tax or a limit on quantity. The compliance (with regard to) carbon is a much bigger (issue) than sustainability.”

A visiting fellow at Duke University’s Fuqua School of Business since 2008, Anda specializes in issues related to carbon as a financial market. He formerly served as vice chairman of Morgan Stanley and is a member of the board of trustees of the Asia Society, where he is developing the “Initiative for U.S.-China Cooperation on Energy and Climate.”

During his lecture, “Climate Policy and Financial Decision Making: Implications of Adding Compliance Obligations to Corporate Sustainability,” Anda described what he sees as the three “stages” of corporate sustainability compliance.

In the first stage, which Anda calls “Green is Good,” corporations adopt social responsibility with the goals of reaching new market segments, appeasing current customers and strengthening their brand. During the second stage, “Greed is Good,” corporations are drawn to green practices because of the financial benefits of reduced energy use and to prepare for government regulation. In the third stage, “Green Risk,” corporations don’t have a choice in the matter — they’re required to comply with climate policies.

It’s this last stage that Anda has focused on most intently — and he encouraged Kellogg students to do the same.

“There’s not a lot of work in finance and accounting in this stage — justifiably, because we don’t have a policy,” he said. “But if I were in business school, this is an area that I’d be thinking a lot about.”

A government-imposed carbon tax isn’t the answer to the problem of carbon emissions, Anda added. It’s difficult to determine what tax would be appropriate because “this isn’t a situation where we have a marginal cost and a marginal benefit,” he said. “We don’t know what’s going to happen to the climate … so we have a skewed distribution.”

In his concluding remarks, Anda said that the complexity of climate issues and policy options demands the tools of modern finance.

“This is not an area where we can skate by with economists and engineers alone,” he said. “A lot of money is moving around. There’s a lot of uncertainty, and we could get it wrong. We could end up with energy being the next healthcare issue.”