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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.