Pricing pollution a tricky business

Carbon trading is taking off, but what concrete results do these abstract markets achieve?

Elsa Wenzel
2 min read

SEATTLE--Carbon offsets, energy efficiency credits, renewable energy certificates. The lexicon of the new, niche business world of brokering in greenhouse gases was spoken at the Discover Brilliant conference Monday. (It felt like being in Charlie Brown's classroom.)

Carbon markets have begun to boom over the past year, offering corporations options for offsetting their emissions by trading them with cleaner companies. Many proponents of carbon trading want laws to force businesses to clean up their act.

"As long as companies can dump carbon without paying, they will," said K.C. Golden, policy director of Climate Solutions, a nonprofit that advises businesses on renewable energy strategies.

Under Europe's mandatory carbon cap and trade system that took effect this year, companies are allowed to emit a certain amount of greenhouse gases. To make up for exceeding that level, businesses buy expensive credits from companies that release fewer carbons. Europe borrowed the idea from the U.S. Clean Air Act of 1990, which set up caps and trading for sulfur dioxide, which causes smog.

Carbon markets are set to take off here in 2009 once a cap-and-trade program comes into effect in 11 Northeastern states. California establishes its own system in 2011, and is setting up emissions trading with Oregon, Washington state and British Columbia.

Attempts to offset carbons spewed into the atmosphere are attractive for companies seeking to wash their hands of causing climate change. The trading might be lucrative where mandatory, especially for businesses that already emit few carbons.

"If you're a large emitter, emitting tens of millions of tons of carbon and each one of those tons is a $10 cost, there's a noticeable impact on your balance sheet--or it can be a noticeable plus if you can sell it," said Gordon Smith, EcoLands Director of the nonprofit Environmental Resources Trust.

PepsiCo bought in April the largest chunk of renewable energy certificates yet--500,000 terawatt hours worth--through the for-profit Sterling Planet, which also supplies green pricing programs to 43 utilities companies.

Critics, however, contend that carbon trading is a distracting shell game that lets companies dump some carbon in one place while supposedly removing it elsewhere--kind of like throwing trash out your car window on the way to volunteer at a beach clean-up.

Determining the effectiveness of these new markets is sure to get harder as they grow. The very concept of carbon trading is an abstraction upon an abstraction, sort of the way a hedge fund is. It's hard to visualize carbon in the air, unlike other environmental hazards, such as banned aerosol from hairsprays that would hiss in your face, or cigarette smoke.

Even the seemingly more concrete efforts to reduce carbons are hard to measure. Environmental Resources Trust, which creates a registry of emissions rather than a market for trading them, specializes in forestry credits. The goal is to get more trees in the ground to suck up carbon dioxide. Trees look lovely and may be easier to count than abstract emissions certificates, but measuring their effectiveness is not.