NEW YORK—A company recycles a product, doing its part for the environment through reuse, only to be told it's worth more to destroy it. Welcome to the wonderful world of the carbon market, especially for a company that deals in refrigerants.

These gases, culprits in no less than two environmental crimes—the ozone hole and climate change—are required to efficiently cool your food and beverages. Yet, chlorofluorocarbons, to give them their proper name, are potent molecules that both exacerbate the blanket of greenhouse gases warming the world as well as chew up the stratospheric ozone layer protecting the planet's inhabitants from excess doses of ultraviolet sunlight.

Such refrigerants can be turned to cash, either the old-fashioned way—making and selling them—or by destroying them to reap carbon credits. In 2005, destroying such refrigerants "was the big thing," said Lenny Hochschild, a broker at Evolution Markets. "It was the low-hanging fruit, but that's all gone now."

That's why Waziri "Waz" Garuba, who came from Goldman Sachs and Columbia University's MBA program to become the newest member of the Evolution Markets carbon team at the end April, laboriously tweaks data in a financial model he is building in Microsoft Excel. Under what circumstances does destroying refrigerant gases still makes economic sense, factoring in all relevant costs and fees, such as the 3.5 percent commission Evolution charges on every deal? "Is this profitable?" Waz asks and tries to answer for trichlorofluoromethane, dichlorodifluoromethane and other refrigerant gases.

It's definitely not about tree-hugging for anybody on the Evolution carbon team. "I'm not that in love with polar bears, and I don't think they'd like me too much either," Waz said, phone hanging over his shoulder as he types another instant message. "Being born in Nigeria, I understand the value of the environment.... You can protect the environment by putting value on it."

For example, landfills leak methane gas as microbes degrade the trash within. Harvesting that landfill methane for use as a fuel also offers greenhouse gas reductions, since methane traps 23 times as much heat in the atmosphere as CO2 over a century. So Evolution advises landfill operators on what price they might get for, say, 100,000 metric tons of avoided emissions over a 10-year period. "Six-fifty," said broker David Nussbaum, meaning $6.50 per metric ton per year, "maybe less." Hochschild disagreed. "We'd be lucky to get you five," partially because the U.S. Environmental Protection Agency may further clamp down on such fugitive emissions, reducing their value as offsets. In fact, the EPA is currently considering whether to mandate the elimination of HFC-134a.

And that is the most devilish detail of all: So-called "additionality," the concept that in order to count against some kind of national or international budget for greenhouse gas emissions, the emissions avoided or reduced must be in addition to what would have happened anyway. So, for example, a new wind farm is "additional" if the money from the CO2 emissions saved helps enable it to get built in the first place. If it would have been built anyway, then it doesn't really save emissions. This has led some critics, such as NASA climatologist James Hansen, to dismiss offsets as a con game. "There are a huge number of industries and people who do not want us to move to the world beyond fossil fuels - these are the biggest fans of cap-and-trade," he wrote in a May 2009 letter to carbon traders. "Next are those who want the process mystified so they can make millions trading, speculating, and gaming the system at public expense."

Standing guard over the additionality concept and generally vouching for the credibility of any given project—the key to any shred of environmental credibility as far as reducing greenhouse gas emissions goes—are standard-setters like the Climate Action Reserve from California or the Voluntary Carbon Standard from Washington, D.C. Then there are the verifiers, consultants like Det Norske Veritas (big in shipping inspection) or SGS (which got its start weighing grain shipments), who ensure that projects actually reduce emissions.

7 Comments

1. 1. hotblack 01:35 PM 9/9/10

   Maybe we can get a few republicans to tell us what they already think.
   
   ...wait for it...
   
   ...wait for iiiiiiit...

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2. 2. Quinn the Eskimo 01:23 AM 9/10/10

   If algore is hiring the Boy Scouts to plant 21,000 trees to balance his carbon print from his palace in Tenn. and his jets. . . Who's verifying they're actually planting anything?
   
   Maybe we should just . . . if you earn, give it to Washington. They know better than all of us combined! They do! Just ask 'em.

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3. 3. gesimsek 12:24 PM 9/10/10

   People who think that the commercialization of the information was a good idea should look at the article in this magazine on ghostwriting in drug industry. If I do not know what you think unless I pay I will not be able to understand you unless I am rich in which case I do not need to know what you say.

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4. 4. delmaracer 05:46 PM 9/10/10

   Trading Carbon is a CON JOB. It does nothing to reduce the carbon being produced. It only moves it around the planet. So, why aren't the environmentalist demonstrating against the CON JOB?

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5. 5. Ruler4You 10:09 AM 9/11/10

   What I can't believe is that "scientists" haven't exposed this con for what it is. And I suspect that is because of the vast sums of money at stake.
   "Science" is just one more 'opinion' these days, frequently just as opinionated and free of science fact as any lay person opinion. And for likely the usual reasons, as we have seen from the CRU debacle.

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6. 6. eco-steve 06:19 PM 9/13/10

   Of course carbon trading is wide open to fraud and should be abandoned in favour of greenhouse gas tax. Climate change occurs because energy prices are held artificially by force below realistic levels that would allow atmospheric hygiene.
   The solution exists and can be seen on Wikipedia under 'Biomass Pyrolysis', biomass including fossil hydrocarbons. All that is required is a proper carbon tax to double CO2 prices.

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7. 7. Erostisi 08:16 PM 9/13/10

   Can we really say that carbon trading is the wrong way to go? Of course, right now it isn't working because both companies and governments are scamming people. But once regulated, like any other business, it will fall in line and become a legitimate enterprise. Of course, it will probably take years for the government to pass the necessary legislation to make it possible, but it is possible in the foreseeable future.
   
   And from my point of view, cap and trade can reduce carbon emissions. If governments lower the cap every few years, companies would steadily decrease their emissions or be slapped with a heavy fine. Just look at traffic violations; charging $150+ for a ticket seems to encourage people not to speed.
   
   I'm not saying that we should only have a carbon trading system; in fact, I believe we should have both a carbon trading system and a greenhouse gas tax. If companies are forced to pay for their emissions, they will become more responsible about how much they output and reduce it, because money is always a major motivator.
   
   To sum it up, carbon trading isn't as useless as it seems. It can be a major force in reducing emissions when regulated properly. We just need to give it more time.

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