TOPICS > Science

Emissions Exchange Program Aims to Reduce Greenhouse Gases

June 7, 2006 at 6:25 PM EDT

PAUL SOLMAN, NewsHour Economics Correspondent: A dairy farm in mid-Minnesota: 900 contented cows; over 6,000 gallons of milk a day; and, sadly, about 20,000 tons a year of a dairy farm’s foremost or, should we say, hindmost product, manure.

DENNIS HAUBENSCHILD, Farmer: That cover is being held up by the gas that’s being generated.

PAUL SOLMAN: Farmer Dennis Haubenschild has invested nearly half a million dollars in an anaerobic digester, in which bacteria deconstructs his dung heap into first-rate fertilizer and a familiar aromatic gas made up mainly of methane.

So this is sort of a little canopy of flatulence?

DENNIS HAUBENSCHILD: That’s another way of looking at it, I guess, yes.

PAUL SOLMAN: More noxious than this very natural gas’ odor, it turns out, is its effect, the effect of its main ingredient, methane, on global warming.

Once in the atmosphere, methane, a greenhouse gas like carbon dioxide, lets sunlight through to the Earth but traps some of the heat reflected back towards space, warming the Earth like a greenhouse.

Carbon dioxide, mainly from the burning of fossil fuels, accounts for some 80 percent of U.S. greenhouse gas emissions. Methane from cows, farms, landfills and coal mines accounts for only 10 percent or so.

But, pound for pound, raw methane is 20 times more potent than carbon dioxide as a heat blanket, so Haubenschild captures as much methane as he can, then burns it to run a Caterpillar engine, that in turn helps power his farm.

With some billion head of cattle worldwide, the converging of even a fraction of their dairy-air, if you’ll pardon the expression, relieves the atmosphere. Farm witticisms at an end, let’s move to the economics.

How do you get farmers to convert?

A new "cash cow"

Richard Sandor
University of Minnesota
He made $5,000 or $10,000 from this trade. That may not sound like a lot to you, but the average dairy farmer in this state makes $55,000 to $60,000, so we have a new business model for Minnesota dairymen.

RICHARD SANDOR, Chicago Climate Exchange: The farmer now has a new business model.

PAUL SOLMAN: Give them a financial incentive, says Richard Sandor, founder of the Chicago Climate Exchange, where Haubenschild himself now makes money by selling credits for putting less greenhouse gas into the atmosphere.

RICHARD SANDOR: He made $5,000 or $10,000 from this trade. That may not sound like a lot to you, but the average dairy farmer in this state makes $55,000 to $60,000, so we have a new business model for Minnesota dairymen, OK?

PAUL SOLMAN: Richard Sandor, PhD in economics from the University of Minnesota, was back at his alma mater recently touting his latest venture. Father of the interest-rate futures market, Sandor has applied the market concept to global warming. His model? The market for that environmental scourge of the 1980s: acid rain.

NARRATOR: Perhaps the most depressing news about acid rain is that, for parts of the environment, it may already be too late.

PAUL SOLMAN: Worried sick about acid rain? Not anymore, largely because of the Clean Air Act's cap-and-trade system for sulfur dioxide, SO-2. Sulfur-spewing electricity plants were forced to cap -- that is, limit -- their emissions and then continuously lower them.

If they went over their cap, they had to buy credits from those who had come in under and had sulfur credits to burn, if you will, to sell, thus the market incentive to come up with sulfur-slashing technology. The results: The cap-and-trade market system has cut air sulfur levels in half without raising electricity rates, adjusted for inflation.

RICHARD SANDOR: We took that program and we said, "OK, there's a great program. That dog hunts, and let's try to do what we did with financial instruments and SO-2 and try to apply it to carbon."

PAUL SOLMAN: One slight problem with cap-and-trade for global warming, however, is that, in the U.S., there's no cap, no legal limit on greenhouse gas emissions. We haven't even signed the global Kyoto Protocol and its cap-and-trade system. That's because Kyoto could have cost the U.S. $400 billion a year and 5 million jobs, says President Bush's environment czar James Connaughton.

JAMES CONNAUGHTON, Chair, President's Council on Environmental Quality: We do not want to put Americans out of work for the sake of an economically-damaging set of climate strategies. The cheaper choice for an investor will be to move your investment in energy-intensive activities to another country.

When that happens, the jobs go, the economic investment and growth goes, the air pollution and greenhouse gases go back up into the atmosphere.

Getting a head start

Russell Train
Former EPA Administrator
I think it will become an economic plus, new technologies, demand. The demand for this kind of thing is going to be enormous.

PAUL SOLMAN: Russell Train, though, environment czar back when Richard Nixon was president, is among the many who thinks cap-and-trade could create jobs here.

RUSSELL TRAIN, Former EPA Administrator: I think it will become an economic plus, new technologies, demand. The demand for this kind of thing is going to be enormous.

PAUL SOLMAN: Richard Sandor's Chicago climate exchange is trying to spur such innovation. It signed up 150 participants so far willing to voluntarily cap and lower their emissions: Ford, IBM, Motorola, Dow Corning, DuPont, International Paper. Even American Electric Power, the largest coal-burning utility in the western hemisphere is on board, giving incentives to those who can sell credits.

Sounds great. But we wondered: Why in the world, if I were a company, would I voluntarily sign up to cut my carbon emissions if I didn't have to?

RICHARD SANDOR: If you're not at the table negotiating, you're going to be on the menu, OK? And I think it was very important for people to understand or believe that they had better be involved in crafting the rules and regulations so that they would be consistent with commercial logic in achieving a social goal.

PAUL SOLMAN: In other words, these firms believe they're simply getting a head start on the inevitable, by pledging to cut a certain amount of greenhouse gases by a certain date. If they miss, they buy credits from entrepreneurs who lower emissions, say, Farmer Haubenschild.

DENNIS HAUBENSCHILD: In fact, it's up to $3.65 today per ton per carbon credit.

PAUL SOLMAN: That's $3.65 per metric ton of carbon dioxide. And, remember, methane is nearly 20 times more valuable. So cold, hard cash for hot steaming cow pies to not release their bio-gas into thin air but get recycled instead into fertilizer and energy.

DENNIS HAUBENSCHILD: Every hundred cows produces enough energy per day equal to a barrel of oil, so we're basically -- here with 900 cows, we're producing the equivalent to nine barrels of crude oil a day.

Verifying the "greenness"

PAUL SOLMAN: But are his numbers for real? How much energydoes he use to make the methane, for example? It's how much extra energy heproduces that matters. Crucial to the Climate Exchange, then, auditors like EdHeslop.

ED HESLOP, Environmental Credit Corporation: What we do iswe try to measure how much gas comes off and thus turn it to a monetaryinstrument that can then bring some value back to the farm to help justify thelarge capital investment that went into the digester system that Dennis put inand the electrical engines in some one.

PAUL SOLMAN: Or, as Richard Sandor says of any firm thatadvertises its greenness...

RICHARD SANDOR: Where is the audit? Who has checked thesenumbers? Who has verified?

PAUL SOLMAN: ... that's the issue at the University of Minnesota,which has also joined the Climate Exchange, hoping to make a few bucks. Itswindmills replace fossil fuel use, though it takes sun energy to make andmaintain them. More problematic: the biofuels used for transportation.

Dean Robert Elde.

ROBERT ELDE, Dean, University of Minnesota:Ten percent of the university's vehicles are now E85 or flex-fuel vehicles.

PAUL SOLMAN: That is, they run mainly on ethanol made inthis country mostly from corn. But whether that move earns the universitycredits on the Climate Exchange is still being argued, because at the moment ittakes almost as much energy to make the ethanol from corn as the energy you getfrom the ethanol.

More dramatic would be to switch from "Old KingCoal," the dirty old fuel currently powering the Minneapolis campus, towaste biomass just down the river at General Mills, oat halls, what's left overwhen you make Cheerios and its sisters cereals.

Hardly any fuel used to get these guys ready to burn. Littleenergy in; lots out.

ROBERT ELDE: So the hulls of oats are a very good form ofbiomass.

PAUL SOLMAN: And you're hoping that, if you take this andjust kind of -- may I?

ROBERT ELDE: Yes, sure, sure, sure.

PAUL SOLMAN: Just dump it, you're going to get credit fromthe Chicago Climate Exchange for doing this?

ROBERT ELDE: That's right, for displacing the coal, foradding it to the mixture and displacing the coal.

A long road ahead

Dennis Haubenschild
Dairy Farmer
The footprint that we're leaving on this Earth, the average United States citizen, has got to be less if we're going to maintain any type of sustainability at all. I feel that this has got to be done, and I've got to show that it can be done.

PAUL SOLMAN: On the exchange, you can get credit for lots of ways to eliminate carbon: sop it up in a newly-planted forest; a restored prairie; or some newfangled form of pollution control.

But the price for credits has to be high enough to cover your costs. Right now, it's been hovering around $3.50 a ton, because the system's voluntary market demand for credits is relatively low.

ED HESLOP: If the United States developed its own cap-and-trade system under the Kyoto-style, it would make everybody's life easier. We'd reduce global warming; we'd reduce the emissions; we'd be able to get a more active marketplace that would provide true financial incentives for people to do right.

PAUL SOLMAN: At the moment, Dennis Haubenschild is barely breaking even. It costs too much to shovel the -- well, move the manure, pay for the pump that gets it all in under the tent, that is, the tractors that take the finished fertilizer out to the fields.

But this is a guy who recycles all of his plastic, runs an experimental fuel cell on dairy-ere, ferments entire corn plants for cow feed. He believes we have to recycle our carbon and methane or life itself will be impossible.

DENNIS HAUBENSCHILD: The footprint that we're leaving on this Earth, the average United States citizen, has got to be less if we're going to maintain any type of sustainability at all. I feel that this has got to be done, and I've got to show that it can be done.

PAUL SOLMAN: The Chicago Climate Exchange, Haubenschild and others are coming to believe, might be one way to do it, more so if the U.S. government gets involved.