Ayn Rand, Size buyer: CO2e

Make sure to check out last weekend’s story in the New York Times Magazine on the Chicago Climate Exchange (CCX) and carbon trading. It talks about the history of the exchange and its chairman and CEO Richard Sandor. Don’t forget, this is similar to, but separate from the EU Emissions Trading Scheme (ETS) – which has government enforced caps, and is up and running, showing more and more signs of being a ‘real’ market – with ridiculous growth potential.

Here’s a good excerpt cover the basics of a ‘cap-and-trade’ system:

Sandor’s interest was sparked by the Environmental Protection Agency’s 1990 Acid Rain Program, which sought to reduce sulfur dioxide emissions from coal-burning power plants in the United States. The design of the program was ingenious but simple. Instead of trying to regulate sulfur dioxide emissions the usual way, by dictating a certain kind of emissions-control technology on each power plant, the E.P.A. employed what is known as a cap-and-trade program. The agency set an overall limit, or cap, on the amount of emissions permitted from all power plants combined. Then it allotted a certain number of pollution allowances to each emitter and let the operators of individual plants figure out how they wanted to proceed. A company might install scrubbers or switch to lower sulfur coal in order not to exceed its quota, but if the company determined that polluting beyond its quota was necessary, it could buy additional allowances from companies that had not used up their allotments. Companies that reduced their emissions could bank their credits for later use or sell them for a profit.

And here’s a taste of the upside potential in the carbon markets:

But of course, green is also the color of money. And Sandor, who has been called ³the father of financial futures² for his role in creating interest-rate futures in the 1970¹s and who made a fortune during the boom years of the 80¹s at Drexel Burnham Lambert, the firm of the junk-bond king Michael Milken, is also familiar with that particular shade. However high-minded in principle, the Chicago Climate Exchange is also about making a buck off the planet¹s looming climate catastrophe.

Not that there¹s anything wrong with that. In fact, the trading of greenhouse gas allowances, also known as carbon trading, may be capitalism¹s best answer to the problem of global warming. To avoid a dangerous degree of climate change, many scientists say, greenhouse gas emissions worldwide will have to be cut by 50 to 70 percent over the next 50 years. The only hope of achieving that, short of an unforeseen technological breakthrough or the passage of draconian environmental laws, is to inspire radical change in the economic system. In a carbon-trading scheme, you must pay to pollute: price tags are placed on greenhouse gas emissions and then the market (not the government) essentially figures out the cheapest, most efficient way to reduce them. ³The beauty of carbon trading,² Dan Dudek, chief economist at Environmental Defense, a nonprofit advocacy group, explained to me, ³is that it takes a primal human impulse <>

Leveraging the power of greed is an interesting one, and reminds me of one of my favorite books, Atlas Shrugged by Ayn Rand – it speaks to the power of free markets, as well as how misunderstood and misused the concept of free markets can be – responsibility must be at the heart of such a system, it is the productive element of society holding the atlas on our shoulders, and it does no good if we do that in a way that destroys the atlas itself. As we reach the bio-physical limits of our planet, it is not as clear what indirect or time-delayed impacts our actions will have on others and the biosphere as it was in Rand’s time – I think were she writing today it would be about the adjustments that need to be made to our current system to get back to the heart of free market capitalism, and what fundamental adjustments need to be made to deal with our new-in-the-history-of-humanity reality of a globalized world. (On that note, I just stumbled across and interesting movie on the subject – Fixing Capitalism – check it out). And I think she’d definitely be in support of a strong, enforced international cap-and-trade system for greenhouse gases. So, make sure your congressmen support these initiatives (RGGI, Climate Action Registry, etc) and urge the companies you’re involved with to engage. Stay going.