I went to a hugely informative event yesterday. It focused on the "carbon markets" and was organized by the non-profit Ecosystem Marketplace. The symposium was also geared as a promotional event for their new book: Voluntary Carbon Markets: A Business Guide to What They Are and How They Work. What's a carbon market you ask? Well, that's a good question. There are quite a few dimensions to this area. "In addition to setting emission limits, the Kyoto Protocol provides several market-based mechanisms to enable GHG emitters to achieve their assigned reductions. The basic idea, trading emission rights, has been successfully implemented for other pollutants in many countries. Under this system, because some countries will be able to reduce emissions more easily and cheaply than other countries (for example through forest-based carbon offset projects), they can sell their surplus reductions (or carbon credits) to countries that emit more than their limit. This will enable achieving the overall global emissions target at the least cost. Carbon projects can therefore generate financing for conservation by selling certified carbon credits to GHG emitters." (This is from the Conservation Finance Guide, a joint project of the Conservation Finance Alliance). Credits from Clean Development Mechanism (CDM) projects are a particularly hot ticket these days according to one of the experts from the symposium who works for Evolution Markets. (See my reference to CDMs under "IPCC Report" below in Headlines.)
One of the progenitors of the "cap-and-trade" system that allows polluters to accumulate "credits" is Environmental Defense, back when they were the Environmental Defense Fund. The system was conceived with sulfur dioxide in mind. Acid rain is largely a consequence of sulfur dioxide emissions from electrical and industrial power plants. The push for this system to be deployed within the acid rain title of the Clean Air Act reauthorization was led by EDF. See "The Cap and Trade Success Story" from Environmental Defense. Very interestingly to me, at yesterday's symposium, Peter Koster, CEO of the European Climate Exchange, said that after Kyoto when the Europeans were looking for compliance mechanisms, they were urged by Clinton and Gore to adopt a "cap-and-trade" system because of the success of the acid rain program in the U.S. Now the Europeans are vigorously briefing members of Congress and staff, as well as legislative and executive branch leaders and staff in California, about how it all works in Europe. See this story, for instance, from "The Hill," on some of the issues involved in crafting legislation. See also "Four Principles for Successful Climate Policy" from Environmental Defense. Of the four principles, one is about the cap and two are about trade.
Carbon markets, mostly in Europe, have been growing: trading $11 billion in 2005, $30 billion in 2006. Obviously, with the new proposals from the E.U. and from Britain (see my post on the EU Summit Agreement, which also references the U.K. initiative), and with cap-and-trade something of an inevitability for the U.S., with California and other western states as well as the members of the Regional Greenhouse Gas Initiative in the east leading the way, the markets are going to explode in size.
So, you've got the "regulated" markets where requirements have been instituted on emissions and credits are traded. But you've also got the "voluntary" markets. In brief, according to this report from the International Institute for Environment and Development: "The voluntary market refers to entities (companies, governments, NGOs, individuals) that purchase carbon credits for purposes other than meeting regulatory targets." You can, for instance, offset the GHG burden of your roundtrip vacation flights. You go to a provider who then takes the amount of money that has been calculated to offset the carbon expenditure you've made and applies it to some worthy project. I referenced this sort of activity in my post on the "Business of Green" , see the third paragraph. One of the folks on yesterday's panel, Josh Harris from The Climate Group, is involved in creating a "Voluntary Carbon Standard." (The article on the VCS is from ClimateBiz, a terrific resource.) Here's another fun bit from yesterday: Distinctions are made in all of this between "commodity" carbon and "gourmet" (or "pretty" or "charismatic") carbon. In other words, individuals and companies may wish to buy into projects that some may deem "prettier" (rainforest or coral reef protection, for instance) so that they feel as if they're getting more "green" for their greenbacks (or euros or yen). Companies may tend this way because of the greenwash value or the enhancement they feel that may accrue to their corporate social responsibility (CSR) profile. To be sure, this is a consideration that has grown enormously in importance for top corporate management and their boards.
Another worthy from yesterday's panel, Gia Schneider from Credit Suisse, pointed out that there are opportunities for companies in GHG reduction and they are finding more and more of them. Energy efficiency and renewable energy initiatives, the most salient examples, bring costs down. Here's a good example from the BBC: "French plan green postal service." What could be more obvious?! Of course, I've been saying that sort of thing for many years. (See my post below on Renewable Energy). I remember, going back many years, the visionary "Pollution Prevention Pays (3P)" program from 3M. They say: "Over the last 30 years, the program has prevented more than 2.5 billion pounds of pollutants and saved over $1 billion based on aggregated data from the first year of each 3P project." The Rocky Mountain Institute, for instance, will help your business, as will hundreds of other consultants. As RMI puts it: "Advanced techniques for resource productivity can now greatly reduce environmental impacts while providing superior goods and services at lower cost."
Let me note one more comment from another of yesterday's panelists, an old-timer like me, Skip Rankin from the law firm, Baker & McKenzie. He said he'd been involved for 20 years in renewable energy projects and was pleasantly astonished to be seeing the intense level of activity that he's seeing now. (I said in my post on Renewable Energy below that I myself felt like Rip Van Winkle with everything taking off as it is). Skip's involved in creating contractual standards for carbon transactions. Not incidentally, a great resource on climate change and the law is the ABA. Their forthcoming book, Global Climate Change and U.S. Law, was edited by an old and good acquaintance – and easily one of the most prolific writers and editors I've ever known – Mike Gerrard. (My post below on the "Business of Green" also references an informative article from the "NY Times" on the law and climate change.)
As yesterday's symposium and one of the panelists in particular made abundantly clear: "The game is already on." The markets are here, and they are going to grow enormously. Theoretically, they should greatly enhance the process of reducing greenhouse gases thereby diminishing the chances of catastrophic climate change.
