Monday, January 19, 2009

Carbon Trading: How to (Maybe) Make Money Out of Thin Air: And One of my Favorite Carbon Cowboy Quotes

From Barron's:

A host of ways to cash in on the effort to reduce greenhouse gases.

CHANGE IS IN THE AIR. PRESIDENT BARACK OBAMA'S inauguration Tuesday should revive environmental initiatives that wilted under his predecessor. One of the most important is "cap and trade," a market-based system designed to cut emissions of greenhouse gasses, particularly carbon dioxide, blamed for global warming. Thursday, a group of companies and other backers came out in support of cap-and-trade legislation. Investors soon will hear a lot more about it.

Gary Overacre for Barron's

Cap and trade has strong support within the new administration. Obama was on the board of the Joyce Foundation in Chicago when it helped fund the Chicago Climate Exchange (owned by Climate Exchange, ticker: CLE.UK), which runs a voluntary cap-and-trade program and trades carbon futures. The Environmental Protection Agency's new director, Lisa Jackson, was New Jersey's representative on the Regional Greenhouse Gas Initiative, or Reggie, a promising cap-and-trade program for 10 Middle Atlantic and northeastern states.

Look for new proposals to emerge in the House (from Henry Waxman, Edward Markey and Nancy Pelosi) and the Senate (possibly from Barbara Boxer, John McCain and Joseph Lieberman).

Richard Sandor, the CCX's chairman and chief executive, who's credited with inventing interest-rate futures, has attracted about 400 entities, including Monsanto (MON), IBM (IBM) and Intel (INTC), as well as the city of Chicago, to sign on to a voluntary program that mandates an emissions cap....MORE

In the carbon biz the concept of "additionality" is crucial; you don't give credits to projects that would have happened anyway.

Last October, in "Pollution Credits Let Dumps Double Dip" the Wall Street Journal's Jeffrey Ball quotes the CCX's Mr. Sandor:

...But the exchange acknowledges that on some of those outside projects, it is authorizing the sale of credits for cleanups that had been performed anyway. Richard Sandor, the exchange's chairman, says that doing so rewards "early action" and encourages other landfills to capture methane too.

Mr. Sandor says the exchange's main goal is to help develop a commodity that has financial value under any possible future U.S. law that to regulates greenhouse-gas emissions. The debate over whether or not a polluter would have cut its greenhouse-gas emissions without the financial incentive of credit sales is "quite interesting, but that's not my business," Mr. Sandor says. "I'm running a for-profit company."...