The Three Marketeers

Emily Gertz is a regular contributor to WorldChanging.com, and an internet content and strategy consultant for nonprofits. She has written on environmental policy for BushGreenwatch, and on the intersections of environment, culture, art, and activism for The Bear Deluxe and other independent alternative publications.

How do we pay for the energy transitions that constitute a rational response to global climate instability? That's the question addressed at the "Show Me the Money" session, Thursday afternoon at Verdopolis.

The basic background for the discussion is the Kyoto Protocol, the global climate treaty coming into effect on February 16. Kyoto defines the percentage by which each of the industrialized nations that signed it must reduce the greenhouse gases they add to the atmosphere, calculated as a percentage of total emissions based on 1990 levels. Signatories agree to these reductions, or "caps," and set up regulations to mandate them.

Kyoto gives them several options to meet their caps. They can simply clean up domestic emissions. They can work jointly with other nations to arrive at a net reduction; this could include helping a lesser industrial power clean up its energy production, or financing clean energy in a developing nation.

Also, countries and companies can trade "carbon credits" from other nations or companies that go below their own caps, essentially buying from a shared carbon surplus.

So: To set a cap, you regulate. One way to meet the cap is to trade for carbon credits. To trade, you need a market, just like the NASDAQ or AMEX, to assign value to credits and provide a forum for transactions. And according to this Verdopolis panel, while Europe's got the regulations, the U.S. has the markets. What's up in the air is whether Wall Street will choose to use them before it's forced to.

Peter Fusaro, chair of Global Change Associates and an expert on global energy and environmental commodity markets, leads off. His fast delivery and jargon threaten to leave me behind more than once, but I get his setup of the problematic present: Global carbon markets are underdeveloped worldwide, and not moving fast enough to be a significant factor in climate stabilization. In its present state, Kyoto is too weak to make a significant difference (a valid critique that tends to divide adherents into the "yes, but it's a start" and "no, it's an excuse not to do more" camps).

Says Fusaro, laws mandating carbon emissions reductions and trading are all that will force Wall Street to change its investment and operations practices.

Robert Rubinowitz, vice president and economist of the Chicago Climate Exchange (CCX), describes this pilot project in emissions trading. A multinational, multi-sector, self-regulatory market that "creates a price for pollution," CCX members range from companies trying to clean up to clean technology creators, whose work translates into revenue-generating credits on the exchange. Since no one really knows how we're going to implement alternative energy technologies at the scale needed to stabilize the climate, Rubinowitz suggests, let's connect reduction methods via a market, and let the market decide what pollution really costs.

Rubinowitz expresses great faith in the market path to climate stability: Agree (voluntarily) on an emissions cap, then ratchet down the cap. The price of pollution will rise, driving the market to support investment in innovative technologies that reduce emissions. But do the numbers back that up? According to Rubinowitz, 2.5 million tons of greenhouse emissions have been traded on CCX since December 2003 -- not bad for a wholly voluntary program -- but 15 million tons have been traded on the new, regulation-driven European market just since Jan. 1, 2005.

Next, Bruce Kahn, a specialist in green investments and environmental management for Smith Barney Citigroup, gives a brief overview of growth in socially responsible investment funds, suggesting that we have to think of ourselves as investors -- "Do you have a checking or savings account with a bank? Then you're an investor" -- and use that leverage to make Wall Street harness capital markets to address our environmental goals. And it wouldn't hurt to clear up the misconception that socially responsible investing means poor returns.

It feels quite basic as strategies for change go. I sense that Kahn's used to working a more resistant crowd.

In the public mind, environmentalism has been portrayed as people in T-shirts confronting people in suits, thanks to years of the mainstream media looking for easy drama rather than reporting the issues. Let's observe a herd of wild activists in their native habitat -- the city streets -- performing their ritual protest march past an impassive corporate headquarters. Isn't that exotic?

So what strikes me viscerally about "Show Me the Money" is that those three guys in suits are trying to talk me into believing that the financial structures and strategies of such corporations can enable long-term environmental and financial sustainability. Think beyond boycotts and culture hacking, and into emissions trading and risk management. Talk the Fortune 500 talk, and then get them to walk the walk.

Europe's got the regulations mandating cap-and-trade, but is just getting started in setting up markets. The U.S. has the markets -- there's been a successful sulfur dioxide cap-and-trade market in the U.S. for over a decade, for instance -- but no regulations giving Wall Street incentives to get on board.

Whatever their hopes for the power of markets to stabilize the climate, Kahn, Rubinowitz, and Fusaro all seem to agree that the U.S. -- the producer of one-third of total greenhouse gases, which has not only failed to sign Kyoto, but has actively interfered with its implementation -- will have federal regulations capping carbon within five years. Corporate America thinks so, too. Between those impending regulations, the existing patchwork of state and regional efforts, and the burden of dual regulatory systems in the U.S. and Europe, more and more American companies are already planning to reduce emissions -- or at least start buying carbon credits. The suits are joining the fight.