The result is an overall emissions decline with the lowest overall economic impact, at least in theory, though some economists and other experts argue that such trade in greenhouse gases amounts to "voodoo economics"—the benefits of the trading never trickle down to the actual pollution control.
But the concept has worked for emissions of other air pollutants, such as the sulfur dioxide from coal-fired power plants behind acid rain. The amount of sulfur dioxide falling on northeastern forests from Midwestern power plants has declined since the 1990s when that market was introduced. The acid rain cap-and-trade market "worked cheaper and faster than the naysayers predicted," Hochschild noted. With the total number of such allowances limited by the government, a free resource—the air—suddenly became scarce. With scarcity comes value and value means money.
Today brokers at carbon desks in London, Beijing, Tokyo and New York drum up business in Indonesia, Russia, Brazil and even the Democratic Republic of Congo. Many expect this worldwide emissions market to be worth trillions of dollars some day. Much of today's value is driven by the Kyoto Protocol, which set up a global market for greenhouse gas emissions but is set to expire in 2012, with no prospects of successor treaty in sight.
And that brings up the fragility of today's emissions markets.
One domestic cap-and-trade market, organized by the Chicago Climate Exchange, is voluntary. Launched in 2003, it relies on companies such as Cargill, DuPont, Intel, Ford and Monsanto to make legally binding but voluntary commitments to meet emissions targets either by reducing emissions from their factories or by purchasing permits from other members of the exchange who have exceeded their targets.
That system is now in doubt, Jeff Sprecher, chief executive of the CCX's new parent company, Intercontinental Exchange, told investors during an August conference call. "It remains to be seen in an uncertain U.S. regulatory environment whether companies are going to want to continue to walk down their carbon footprint and whether they're going to continue to get credit for it from Congress and how the Environmental Protection Agency ... will give them credit for the work they're voluntarily doing."
The U.S. market, Sprecher added, is a "loss-making business as it exists today," which may be why ICE is reputed to be laying off much of the staff who run the CCX business.
But Intercontinental Exchange also runs Europe's main carbon emissions trading platforms, and that's a growth business even with no prospects of a global deal to cap emissions on the horizon, Sprecher said.
On just one day in mid-May, 6.5 million metric tons of CO2 allowances traded on the European Carbon Exchange - or more than $150 million worth at a price of nearly EU$16 per ton just for the countries in the European Union; it has grown 26 percent for the year through July, according to the Intercontinental Exchange.
The E.U. is not the only region to have such a trade: Regional carbon markets have proliferated, ranging from an 11-state market in the northeastern United States known as the Regional Greenhouse Gas Initiative, or RGGI (pronounced "Reggie" by aficionados), to the would-be global market for avoiding greenhouse gas emissions as the developing world develops under the terms of the Kyoto Protocol, the so-called CDM, or Clean Development Mechanism (which lacks a cutely pronounced acronym, among other problems).
Lost? Hochschild, sitting now, says you're not alone. "There are more acronyms in this business than anything else."
Thanks to U.S. intransigence, there is an international flavor to the carbon market. And that means Hochschild's day starts early, with phone calls to Europe or Asia, segueing as the day progresses into activity in Brazil or the United States. Education is how carbon brokers drum up business. "They've never heard of carbon offsets or cap and trade, or if they have, they've heard it's a tax," Hochschild said of his U.S. prospects. The hand-holding starts with educating potential sellers and buyers. "Seventy percent is free consulting and 30 percent is actual deal flow," he adds. "But without the consulting, no flow."