Is the United States Ready to Join the Carbon Reduction Revolution?

In sharp contrast to just two years ago, concerns about climate change have now become a household topic. What caused this epidemic to tip (apologies to Malcolm Gladwell)? Was it the Oscar-winning documentary An Inconvenient Truth? Was it G.W. Bush mentioning those two magic words in his 2007 State of the Union address just six months later? Or was it the alternative energy industry using it as a tool in its marketing strategy in order for clean technologies to gain market acceptance?
Carbon reduction
Photo:Step it Up 2007, Creative Commons, Flickr

Personally, I would venture to say that it was a combination of all three, as they are all interrelated. It is no coincidence that so much has happened so quickly. It is no coincidence that concerns about climate change are now a household topic, whereas two short years ago, it had barely been part of the American lexicon. Having followed the alternative energy industry since before these fears reached a tipping point, I am pleased to witness such progress being made.

But is progress really being made? Is "progress" defined simply by creating awareness of a topic?

It can be. Perhaps it is "Step One" in a several step progress. However, I think that we, as a country, have sufficiently achieved that first step. We now have to get to work on doing what the rest of the developed world is already doing. Since climate change is not going to fight itself, we have to install market mechanisms that incentivize us to address this issue. Simply put, we need to….drum roll….start making money in the process.

Yep, reducing greenhouse gas (GHG) emissions can be monetized….and can it ever! Carbon credits are currently being traded in Kyoto-mandated countries, and the World Bank estimates that the current valuation of the global carbon market is already $30 billion. Oslo-based research firm Point Carbon anticipates that this figure could balloon to $565 billion by 2020. Carbon offset projects in the form of sustainable forests, energy efficiency programs, renewable energy installations, and others, are reducing the amount of GHG emissions and simultaneously creating carbon credits that can be sold on the open market. And so the carbon finance industry has been born. Anecdotal evidence suggests that London has already become the miniature carbon finance capital of the world.

None of this matters to America, however, largely because we do not have a federally-mandated GHG emission reduction program in place. And because of this, a large portion of Americans will not realize that reducing GHG emissions can be a profitable business. And because of this, our country cannot move on to Step Two. And because of this, we are continuing to shy away from our responsibilities as a global superpower.

Sure, there are flaws in the experimental European offshoot of the Kyoto Protocol, the European Union Emissions Trading Scheme (EU ETS). Flaws such as standardized quality control of carbon credits created and a general lack of punishment of those who exceed their emissions quotas have caused the program to be less successful than hoped. With the commitment period slated to begin in just two months, it is critical that these flaws get ironed out sooner rather than later. International NGO's such as the World Bank, the World Resources Institute, and The Climate Group face a daunting task in helping to ensure that the carbon finance industry progresses as it should. Luckily, they now have a whole slew of private sector participants to partner up with including EcoSecurities (ECO.L), MGM International, Lehman Brothers (LEH), and Merrill Lynch (MER). Others will soon join in on the climate gold mine.

Critics claim that economic growth is hindered in requiring greenhouse gas emissions to be curbed. These same critics can essentially be divided into two categories — 1) those that are uneducated on the topic, and 2) those that are too complacent to embrace change and try to look for ways to deny that important changes need to be made. James Inhofe of Oklahoma, an elected official of the United States Senate, is a perfect example. Having too many of these xenophobic types in our country's leadership is dangerous for our future. Additionally, for a long time, oil giant ExxonMobil (XOM) fit into this category, although it hazily softened its opposition to the theory of anthropogenic climate change this year. We'll see how XOM chooses to allocate its massive retained earnings as the climate debate intensifies further. Nonetheless, the installation of a national GHG reduction program such as a cap and trade system can (quickly) educate the public about how to monetize the incredible challenge in front of us. This is much in the same way that the inclusion of federal tax credits for alternative energy in our nation's energy policy has quickly educated the public about the virtues of clean technology. 

Whether you're running a business, a sports franchise, or country, when your team is performing poorly, changes need to be made. And they always start at the top. The American team is now performing poorly, so there will soon be change.

January 20, 2009 gets closer with each passing day…

Disclosure: I do not own any of the aforementioned stocks. It will be a while before I invest in XOM, if ever. I do not yet know who I will be voting for next November.

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