*NEWS*MAKING ENVIRONMENTALISM A COMMODITY
*NEWS*MAKING ENVIRONMENTALISM A COMMODITY
2005-02-10 at 10:00:00 am #10164Making Environmentalism a CommodityZero Chance of Federal
Carbon Trading Under Bush, But States Take Steps
Feb.05-Environmentalists always said there would be a price to pay for
all the carbon dioxide being spewed into the atmosphere. Well, now there is.
While prized resources such as oil, gold and wheat have
been traded for decades, there is a budding market for one of the industrialized
world’s abundant but unwanted byproducts: carbon dioxide, a gas produced when
fossil fuels are burned and which many scientists believe causes global
If it succeeds, the new market for carbon emissions will
reward businesses that minimize their output of this “greenhouse” gas. It will
also benefit the environment and thereby prove, advocates say, that making green
and being green are compatible goals.
“It’s a sign of things to come,” said Luis Martinez, an
attorney at the Natural Resources Defense Council in New York.
The only mandatory carbon emissions trading program is in
Europe. It was created in conjunction with an international treaty on climate
change – the Kyoto Protocol – that goes into effect Feb. 16 and caps the amount
of carbon dioxide that power plants and fuel-intensive manufacturers in more
than two dozen countries are allowed to emit.
A similar program is scheduled to begin in 2008 in Canada,
which also signed Kyoto.
By contrast, the United States, one of the few
industrialized countries that did not ratify Kyoto, is many years away from
compulsory trading or nationwide caps on carbon dioxide, concepts that are
strongly opposed by industry and the Bush administration.
However, nine Eastern states are developing a regional
cap-and-trade program that will require large power plants from Maine to
Delaware to reduce their carbon emissions and California is attempting to place
greenhouse gas limits on automakers. Separately, a small group of companies has
voluntarily agreed to cap their carbon emissions in the United States as part of
an experimental market that is based in Chicago.
“We believe that at some point in the United States there
will be mandatory legislation,” said Bruce Braine, vice president of strategic
policy analysis at American Electric Power Co., a large power producer and one
of the founding members of the Chicago Climate Exchange, or CCX. Other members
include chemicals giant DuPont Co., computer manufacturer IBM Corp. and
electronics maker Motorola Inc.
Under the European Union’s Emissions Trading Scheme, some
12,000 industrial plants will be granted a limited number of emissions
allowances, or credits, equaling the amount of carbon dioxide they are allowed
to emit. Companies that exceed their limits must purchase credits to cover the
difference, while those that produce less carbon dioxide than they are legally
permitted can sell surplus credits for a profit.
Companies can trade directly with each other or through
exchanges located throughout Europe.
By giving the private sector a financial incentive to make
their operations more environmentally friendly, proponents believe the
market-based approach will accelerate investment in emissions-reduction
equipment, create positive reinforcement from investors and spur technological
“We’re confident that once people get used to managing
carbon in their businesses it will be successful,” said David Hone, climate
change adviser at Royal Dutch/Shell Group, which has 46 facilities across Europe
that will be regulated under the cap-and-trade system.
Hone said his optimism is based in part on the success of
the cap-and-trade system the United States designed more than a decade ago to
reduce sulfur dioxide emissions, which cause acid rain. The U.S. sulfur dioxide
market, on which the EU’s carbon market is based, is widely praised for
accelerating emissions reductions at a lower cost than originally anticipated by
But environmentalists and executives said there is much
more at stake when it comes to carbon dioxide emissions, both in terms of the
ecological benefits and the potential costs to industry.
“Carbon is the mother of all environmental commodities,”
said Richard Sandor, who helped design the U.S. exchange for sulfur dioxide and
is now the chairman of CCX.
The first phase of the EU trading program runs from 2005
through 2007 and the caps will be lowered from one year to the next. While
detailed plant-by-plant limits are still being finalized, participants estimate
that EU-wide industrial emissions will drop as much as 5 percent by 2008.
The cost to European industry over the next three years is
estimated to be a few billion dollars, based on current market prices for carbon
dioxide of about 7 euros per ton, according to Ilex Energy Consulting of Oxford,
England. Of course, companies with surplus allowances stand to profit an equal
“Frankly, a lot of companies will be hoping that the
emissions price is low so they face lower penalties from having to go out and
buy allowances,” said Andrew Nind, principal consultant at Ilex.
“The main concern of environmentalists is that the
governments have been too generous in how many allowances they’ve given out,”
Nind said. The lower the price, the less incentive there is to invest in
equipment that reduces emissions, he said.
The second phase of the program runs from 2008 through
2012, by which time the European Union must lower its carbon emissions to 8
percent below 1990 levels. Canada must cut its emissions by 6 percent to comply
with the Kyoto treaty.
In the United States, carbon-intensive industries
successfully lobbied against Kyoto by refuting the threat of global warming
itself, and by arguing that the treaty would hurt the global competitiveness of
American companies and cause electricity prices to rise.
“There are some notable exceptions, but on the whole it
remains an ongoing battle to try to convince corporate America to deal with
greenhouse gas emissions,” said Ethan Podell of Orbis Energy, which advises
companies seeking to devise long-range strategies on carbon emissions.
U.S.-based companies that are already engaged in the issue
- either because they have factories in Europe, or are part of CCX – believe
early involvement could pay off down the line, in large part due to the
logistical expertise they are gaining.
CCX participants agreed beginning in 2003 to cut their
carbon emissions by 1 percent per year through 2006, or 4 percent below their
baseline, which is determined by their average annual emissions from 1998
There is virtually no chance of federal limits on carbon
emissions under the Bush administration, which is openly skeptical of the threat
global warming poses. But U.S. executives anticipate a cap-and-trade program for
carbon dioxide, at least at the state level, within the next decade.
The Regional Greenhouse Gas Initiative,Which aims to
produce a preliminary market design by April, already has the support of
Connecticut, Delaware, Maine, Massachusetts,New Hampshire,New Jersey,New
York, Rhode Island & Vermont