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Climate Wise
by L. Hunter
Lovins
July 2004 |
Can One Person Change the World? You
Bet
It’s not often that you get to see one person
change the world. I’ve had the pleasure, recently, to witness and be
a small part of just such an accomplishment.
When it became
clear that the U.S. Senate would refuse to ratify the Kyoto
Protocol, many of us who favor market based solutions to
environmental problems felt gloomy. Critics claimed that it would
cost hundreds of dollars per ton to abate emissions of carbon.
President Bush said that doing this would bankrupt the economy. A
man named Richard Sandor, who describes himself as “just a humble
economist,” disagreed. And he refused to give in to the despair. He
said, “Governments don’t make markets, traders do. I’m a trader,
let’s make a market.”
And he’s done it. On December 12,
2003, the Chicago Climate Exchange (CCX) started to trade carbon. It
is now trading at 95¢ a ton, hardly the sort of cost to bankrupt
anyone. There is no mandate, no government requirement that anyone
be a part of this. But that didn’t stop the original 14 companies
who joined. And the founders were hardly a bunch of woolly-minded
environmentalists. They included such companies as American Electric
Power, Ford Motor Company, STMicroelectronics, Dupont, Motorola, and
the City of Chicago, significant economic players, all. They joined
for a diversity of reasons, but all felt, with Richard, that this
was an opportunity to use the market to help solve what is now being
called the most challenging problem facing the planet.
Last
week, the Exchange held its first annual meeting of members, now 57
strong with seven about to join. My company, Natural Capitalism Inc,
is a member of the Exchange, so I went. In truth, I would not have
missed this opportunity to watch history being made. This is as much
about proving the concept that greenhouse gases can be cut
effectively and economically as it is creating a whole new
institution in society. And both are happening. Members, on average
are reducing their emissions of greenhouse gases (GHGs) by 8% (the
Exchange only asks a 1% reduction per year), and the institution is
so robust that the Europeans, who are just now setting up their own
mandated exchange, came to the meeting to use CCX as a model.
What does it mean to “trade carbon”? (Actually CCX trades
reductions in all of the gases that are changing our climate, of
which carbon is only one. Others include methane, nitrous oxides and
CFC’s -- the same gases that are being phased out because they
destroy the ozone layer. But it works like this: I fly around a lot.
So my company bought carbon reduction credits from a company that
reduced its emissions by an equal or greater amount. They make
money, I pay money. My office recently signed on to get all of our
electricity from wind power. Were I a big enough player to be a
trader on the exchange, I could sell my reduction of coal fired
power to someone else, who hasn’t yet figured out how to reduce
their emissions.
Ultimately, this will be a very big
business, not only because we have to do it, but because reducing
our use of energy can be done very profitably. DuPont, a member of
the exchange, has set itself a goal of reducing its emissions of
GHGs by 65% by 2010, and by then getting 10% of its energy and 25%
of its feedstocks from renewables. Has DuPont joined Greenpeace?
They made this announcement on CCX in the name of increasing
shareholder value. STMicroelectronics went them even better,
announcing a goal of zero net CO2 emissions by 2010 with a 40-fold
increase in production. By the time that they are done, they reckon
that they will have saved almost $1 billion. And one of the first
players in this game, BP, announced a 10% reduction by 2010. Is that
ambitious? Well, they actually achieved it by 2002. Doing it is
saving them $650 million, and senior officials are now saying that
even if doing it cost them money, it would be worth while because it
makes them the kind of company that the best talent wants to work
for.
Meanwhile such companies as Swiss RE, the major
European re-insurer, is starting to say that if your company does
not take its carbon footprint seriously, maybe our company does not
want to insure you. Or your officers or directors.
There’s a
business case here, folks. Has your company joined? Check it out the
opportunities at the CCX Web
site.
Clearly it would be better if all emitters of GHGs
were required to begin to reduce their assault on the stability of
this critical ecosystem service. But even if Russia does not sign
Kyoto, even if the U.S. continues its stance that solving this
problem will hurt the economy, Richard Sandor has moved the game. He
and his colleagues at the Chicago Climate Exchange have not only set
up the underlying mechanisms, and established a third party
verification process, they showed their members that the process of
reducing their use of energy and thus their emissions confers such
very real competitive business advantages as enhancement of brand,
reduction of costs, and encouragement of innovation.
The
twinkle that you always see in Richard’s eyes is a reflection of a
man who is not only making the market work, he’s making the world a
better place for all living things. Not bad for a humble economist.
----
L. Hunter Lovins is president and founder of Natural Capitalism,
Inc.
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