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Reaping a profit from the air

As concern grows over global warming, farmers and corporations are responding by trading carbon credits through a Chicago exchange.

February 10, 2007|Robert Lee Hotz | Times Staff Writer

When Doug Gronau looks out the window of his Iowa farmhouse, he sees a profitable investment in the effort to stop global warming.

Most people see cornfields.

His cropland, which he is prohibited from tilling, is a greenhouse gas credit, packaged and sold on the Chicago Climate Exchange. An anonymous trader snapped up the field's ability to absorb carbon dioxide to offset -- on paper -- a tiny portion of the carbon dioxide emitted by some distant factory.

Gronau, 57, expects a check for $2,800.

"That may not sound like a lot," he said, "but farming is hard and it adds to your margin."

The Chicago Climate Exchange is the first and only legally binding carbon emissions market in North America. In the absence of federal controls on greenhouse gas emissions, it applies an axiom of economic theory to the problem of global warming: People in search of profit can be expected to do just about anything for a buck -- even save the planet.

That concept of the market forms the cornerstone of regulatory efforts to fight global warming.

Interest in carbon trading as an arcane but powerful tool to fight global warming has intensified after the release last week of a landmark United Nations report that found rising temperatures would continue to increase even if greenhouse gas emissions could be held to current levels.

The theory of the market is straightforward. For the right price, a farmer like Gronau will agree to cultivate his fields without plowing, so the soil retains carbon dioxide that would otherwise seep into the air. That "carbon credit" can then be purchased by exchange members and applied against their own emissions. Should the price of carbon credits climb high enough, the theory goes, company executives one day will find it cheaper to reduce their own industrial emissions.

It's a new form of environmental bookkeeping that theoretically reduces emissions of carbon dioxide and other gases responsible for gradually rising global temperatures.

Since the exchange opened in 2003, almost 200 companies -- including Ford Motor Co., DuPont Co., IBM Corp. and Amtrak -- have volunteered to buy and sell the right to emit tons of carbon dioxide and five other key greenhouse gases.

California officials are beginning to frame market-based trading schemes, inspired in part by the Chicago Climate Exchange, to curb industrial carbon dioxide emissions by 25% over the next 14 years. State and federal regulators already use market trading to control the sulfur emissions responsible for acid rain.

Critics, however, question whether new carbon emissions markets have done anything more than generate profits for market traders while delaying genuine industrial changes that could forestall global warming.

In Europe, where mandatory greenhouse gas controls were recently imposed, the carbon emissions trading system has been marred by foot-dragging, chicanery and profiteering -- even as its sales reached $22 billion.

All that buying and selling did almost nothing to reduce the risk of global warming, records show. Indeed, global levels of carbon dioxide in 2005 were the highest ever registered.

"Have they achieved any real reductions in greenhouse gases?" asked Veronique Bugnion, U.S. research director at Point Carbon, a European firm that analyzes carbon trading markets. "There is not much evidence of a reduction."

Carbon dioxide, the invisible, odorless gas that infuses every living breath, seems an unlikely investment. It seeps out anywhere there is a working smokestack or running motor.

Over the last century, it has accumulated to levels that humans have never experienced, altering how the atmosphere absorbs solar energy and traps its heat. In California, greenhouse gas emissions rose more than 14% from 1990 to 2004, the California Energy Commission reported.

As a signatory to the 1997 Kyoto Protocol, the European Union has taken the lead in imposing caps on levels of carbon dioxide and other greenhouse gases. Many climate experts expect the U.S., which accounts for about a quarter of all greenhouse gas emissions, eventually to have to follow suit.

After the release of the U.N. report, the Bush administration maintained its opposition to mandatory controls on U.S. greenhouse gas emissions, while Democratic leaders in Congress considered different approaches to control the heat-trapping gases.

Once companies are forced to pay to emit greenhouse gases, a commodity as free as breath becomes private property worth billions.

In the cost accounting of global warming, the undisturbed soil between Gronau's rows of corn retains enough carbon to offset a few of the 2 billion tons spewing from U.S. smokestacks and exhaust pipes every year.

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