The Wild West of Climate Change

Are the Wild West days over? That is the subject of a front page article in today’s Wall Street Journal describing the UN crackdown on carbon credits created through the clean development mechanism or CDM. In the last four years, the market in these credits has gone from zero to many billions, creating multi millionaires such as Marc Stuart, the LSE-educated founder of Eco Securities, one of the subjects of the article.

The CDM is an outgrowth of the Kyoto protocol and was the brainchild of another former policy wonk investor, James Cameron, founder of Climate Change Capital. One of the key compromises of the Kyoto cap and trade system is that participants must limit their emissions to a percentage of their 1990 emissions. The choice of a year as a baseline for every country was designed, in part, to avoid difficult discussions about differences in emissions by country. If each country is compared only to its own baseline, then every country only needs to compete against itself.

This formula proved workable for most developed countries. But for developing countries such as India and China, it did not. The developing countries argued, first, that despite all the pollution evident in their skies, they still create only a fraction of the emissions of developed countries per capita. Second, in order to raise their standards of living to those of the developed world, they argued they are certain to increase emissions so much as to make their 1990 levels irrelevant. Finally, they argued they lacked the technology and capital to reduce emissions.. Thus was born the idea of the clean development mechanism. 

Under the CDM, if anyone—for example a western company—undertakes a project to reduce emissions in a developing country below what they would otherwise be—that company can create credits that can be sold to participants on the Kyoto protocol in the developed world to offset their emissions. The idea is that just as it is cheaper to make sneakers in Shanghai than London, it should be cheaper to reduce emissions there. Moreover, conditions are so bad in many developing countries, that cleaning up factories, in theory, should be low hanging fruit. The problem lies in distinguishing valid projects from invalid ones. And the UN, as the Journal article, observes has been ratcheting up the standards so that they are today approving far few projects than before. The result has been volatility in the price of credits and in the financial fortunes of firms such as Eco Securities.

In the long run, the developing countries must be brought into an internationally complete system of constraining emissions through caps or a carbon tax. In the short term, however, the CDM is the only game in town. While some projects are as simple as reforestation, others expand the market for new technologies such as carbon capture and sequestration, wind power, solar power and cellulosic biofuels. 

To learn more about carbon credits which all three remaining presidential candidates support for the United States—as well as the impact on the economy of exciting new clean technologies--come join me at NDN’s New York event this coming Wednesday “Understanding the Clean Technology Opportunity” where I will dicuss these issues with leading experts, Peter Fusaro, founder of Global Change Associates and David Kurzman, Senior Vice President of the Clean Technology Research Group at Panel Intelligence, LLC.. It's still the Wild West, to a degree, in the world of carbon credits and clean technology. But they are rapidly becoming big businesses.

Event Details:
Wednesday, April 16th
Regency Hotel, Regency Room
540 Park Avenue
New York, NY
Click here to RSVP