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Faith-based carbon credit systems

Third in a three-part series.

In February, the Chicago Climate Exchange traded more than 480,000 tons of carbon dioxide in its busiest month ever. Since its opening, the two-and-a-half-year-old market - in which companies with more emissions buy "carbon credits" from those that emit less or that sequester carbon - has presided over sales of more than 4.5 million tons of carbon dioxide.

So far, only a few market-based programs to cut greenhouse gas emissions have sprung up, including Chicago's partner exchange in London (even larger, at more than 140 million tons of carbon dioxide traded since it opened last April). But market-based approaches to help stem carbon releases, and in turn climate change, could prove difficult to marshal and enforce.

Carbon credits currently are expected to remain part of the Kyoto Protocol, the agreement between more than 150 nations to limit greenhouse gases. In the United States, which has not signed on to the protocol, the carbon credit markets are voluntary, as are other efforts to cut greenhouse gases. Because of the lack of a unified federal policy, individual states have decided to step into the fray.

For example, a consortium of seven New England states agreed last December to regulate greenhouse gases, specifically carbon dioxide emissions, across the region, with an associated market trading system. Farther west, Minnesota, California, Washington and others have their own emissions rules that take a regulatory approach to cap and fine for emissions (see Geotimes, October 2004).

In the United States, like "most environmental problems in the country," the response has "started with the states," says Elizabeth Wilson, a policy researcher at the University of Minnesota-Twin Cities in Minneapolis. With air quality rules in the 1970s, for example, after states took action, the U.S. industrial community eventually called "for the feds to have a uniform regulatory approach." This important trend is something current carbon emissions planners should pay attention to, Wilson says.

Indeed, says Granger Morgan, a climate policy specialist at Carnegie Mellon University in Pittsburgh, Pa., companies need to decide today how to plan for potential future changes to U.S. policy. They must gamble now as to how radical those changes will be, and what technologies would be most cost-effective for achieving those goals to either avoid emissions fines or refitting costs later on.

Morgan and his colleagues point out that many U.S. coal-fired power plants are between 20 and 40 years old. How operators decide to replace these plants means either "we are going to lock ourselves into quite a few decades of high emissions" or take steps "to clean things up" now, in hopes of saving money later.

"I believe the United States is going to get serious about limiting emissions, and I'm not alone in this," Morgan says, noting that in his interactions with CEOs and public utility commissioners, he has found that they believe the same and that some are taking steps to get ready. "Up until a few years ago," he says, "most industries were adamantly in the corner of climate denial." Now, many companies, such as BP, are "trying to get out front."

At the annual meeting of the National Council for Science and the Environment, held in February in Washington, D.C., Ross Pillari, the chairman of BP's American division, told an audience that "climate change is the most important of issues for policy-makers to deal with today." Looking forward, Pillari projects 200 million new energy customers every year, mostly because of growth in China. Pillari said that means "sustainable" energy is key, in a time when technologies for "renewable and alternative energy are a long way off," and that such expectations will guide his own company's actions.

In the meantime, many developing countries (and also some developed ones) lack the infrastructure necessary to make carbon credit markets or regulatory efforts effective, says Ruth Greenspan Bell of Resources for the Future, based in Washington, D.C. China in particular is only beginning to experiment with laws to address environmental issues, and so far, its rules on emissions have been enforced from the top down - but local governments and businesses seem to regularly flout such rules.

The lack of infrastructure in China and elsewhere to ensure the legitimacy and sustainability of emissions controls or sequestration projects could render carbon credits valueless. If that is the case, "then having the market is kind of irrelevant," Bell says. To reach whatever targets the international community sets for emissions controls, a market-based approach "can't do it without the basics in place," even if such an approach has proven useful as part of emissions control efforts in the United States and parts of Europe. But because the United States remains the top per-capita emitter of greenhouse gases, followed by the European Union, such programs can still be valuable, she says.

The future course for any country "has to be broader than just the trade part of it," Bell says. "There's no world enforcement system that you can turn to," which creates "a certain element of faith involved," she says, in efforts to reduce greenhouse gases. For now, Bell calls carbon credits and trade incentives "a small piece in a larger issue."

Naomi Lubick

Links:
"Climate tipping point," Geotimes, October 2004

See the February and March 2005 issues of Geotimes for parts one and two of this series about the science and technology surrounding carbon credits.

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