Carbon is the next gold

Consultants and financiers scramble to stake their claim in the trillion-dollar carbon market

By Victoria Schlesinger

Illustration by Christian Northeast

Almost every process of modern life emits some CO2—transportation, heating, cooling, manufacturing, even exhaling. That’s why regulating the molecule is not only an unprecedented undertaking, but for most of us, an intangible one. Because trying to reduce an invisible and ubiquitous substance is by its nature an elusive effort, in the last year many economists have argued that the simplest solution would be to tax emitters for each ton of CO2 they produce. But most companies, financiers, and environmental advocates favor a more complex regulatory system, called cap-and-trade, for its cost effectiveness and incentives. “[A tax] doesn’t motivate the people  here [at the conference] to get up in the morning and do something,” said Josh Margolis, co-CEO of CantorCO2e. Like Margolis, many conference goers offer financial services, such as investing, trading, and funding, to businesses that will be regulated and see their bottom line affected. “Do you think about steps you can take to minimize your taxes, or do you think about how you can earn more revenue? Most of my clients like to earn revenue,” Margolis said.

To create a US cap-and-trade system, the federal government would set a limit on the amount of CO2 the country is allowed to emit, then ratchet down the limit each year. This makes the gas a valuable commodity that businesses can buy if they need to emit more or sell if they reduce their emissions. To monetize emissions, the government would issue carbon allowances, each of which would permit its holder to emit one metric ton (Mt) of CO2. For example, if a company called Alota Power typically emits 100 million Mt of CO2 a year but then invests in cleaner technology that reduces its emissions to 80 million Mt annually, it has 20 million unused allowances it can sell on the carbon market. Suppose Whata Steel Corp is struggling because it usually emits 130 million Mt but under the cap is permitted only 110 million. It can buy the 20 million carbon allowances it needs from Alota Power.

In practice, a cap-and-trade system would regulate two types of companies: those that sell energy sources, such as coal and oil, or those that use a lot of energy, such as utilities and oil refineries. Because of the accounting mess that would ensue, individuals or residences wouldn’t likely be regulated. They will be affected, however, by rising energy and product prices. The climate change policy that legislators agree on will determine who gets the allowances, how many they receive, and who oversees the system. The EPA estimates that a single allowance of one Mt of CO2 could be worth between $37 and $51 by 2020. Given that the US emitted roughly 6 billion Mt in 2004, it’s easy to imagine the carbon market’s size. “We’re talking about handing out money,” says Union of Concerned Scientists (UCS) climate program economist Chris Busch. “If you’re handing out money, everyone’s going to get in line and make arguments, which sound like principled arguments, for why they deserve to get the money.”

For the first time in history, there’s a price on air.

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Damn straight - James Cameron rocks!

Is it supposed tobe COOL to buy the right to pollute? I'm new here, but have heard of this idea before and always assumed it was some sort of a joke, like the ancient idea of buying indulgences so one could sin. Does this actually make sense to anyone besides maybe someone like the former managers of a company called Enron which brought rolling black outs to California?

@Siver Bear - dude you spent too much time as an altar boy as a grom. By creating a market for co2 emissions, coupled with legally binding targets, countries and companies have start paying the true price for their activities. As a result investment, at scale, will be channeled to reduce GHG emissions and generate cleaner energy. Companies that adapt will still make a profit and only now in conjunctiuon with the environment. Wealth can still be created, only now it's wealth worth having.

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