In this WIDE ANGLE web exclusive, we’ll hear from three different carbon entrepreneurs from around the world, each with his own plan for using market forces to protect the environment — Jake Whitcomb of Brighter Planet in Middlebury, Vermont; Shawn Burns of Carbon Credit Corp in Vancouver, Canada; and Dave Sag of Carbon Planet in Australia.
But first, we’ll talk with David Victor. He’s a senior fellow for science and technology at the Council on Foreign Relations, the director of the Program on Energy and Sustainable Development at Stanford University, and serves as an adviser to the Obama campaign.
Download the mp3 of the interview with David Victor
TRANSCRIPT: Carbon Entrepreneurs
In the film “Burning Season,” Wide Angle follows a young Australian entrepreneur named Dorjee Sun as he canvasses the globe pitching his idea for a carbon trading company. Dorjee hopes to protect the Indonesian rainforests by selling the carbon credits that they represent. In this Wide Angle web exclusive, we’ll hear from three different carbon entrepreneurs around the world, each with his own plan for using market forces to protect the environment. But first, we’ll talk with David Victor. He’s a senior fellow for science and technology at the Council on Foreign Relations, the director of the program on energy and sustainable development at Stanford, and serves as an advisor to the Obama campaign.
WIDE ANGLE: The subject of our discussion is carbon trading and other entrepreneurial endeavors aimed at managing carbon emissions. And I was wondering if you could start by just briefly introducing the concept of carbon markets.
DAVID VICTOR: Well, the idea behind a carbon market is that governments put a limit on the emissions that are allowed in the atmosphere. And if government put tight enough limits in place, then over time, less carbon dioxide and other greenhouse gases will build up in the atmosphere and that means less climate change. What happens in a carbon market is that after the government puts a limit, they hand out emission credits to all of the activities that cause emissions into the atmosphere. So those are power plants, refineries, they’re factories of various types. There’s a lot of wrangling about the details of how you’re going to hand out these emission credits. It turns out the credits are extremely valuable. In the United States, those credits would be worth several trillion dollars. So it’s a very political process, but once they’ve handed out these emission credits, then companies are free to buy and sell those credits on the open market the way they buy and sell credits for other pollutants already today, and the way most markets function. And the theory is that when companies are free to make that choice in the marketplace, they can decide what is best – should they invest to control their own emissions, or should they go out to the market and buy credits in order to cover their emissions? And then through the normal operation of the marketplace, the economy finds the cheapest way to meet the overall cap on emissions.
WIDE ANGLE: And there are different ways of earning carbon credits. Some examples are tree sequestration, agriculture and clean development projects. I was wondering if you could talk about the different methods and how they work and how reliable you think they are.
DAVID VICTOR: The only countries that are imposing caps on their emissions right now are the advanced industrialized countries and in particular in Western Europe where all the European countries together have put a common cap on their emissions and set up one of these emission trading systems, or what’s also called a “cap and trade” system. The European system includes only emissions from industrial sources in Europe. But that would be highly constricting for the Europeans because there are many opportunities – not only inside Europe but also around the world – to reduce emissions from factories, for example in China and India, and also to reduce emissions from activities like deforestation that are currently not regulated directly inside the European system. The way they include those other sources of emissions is through various schemes that are called offsets. One of them is the clean development mechanism, and that’s a system that’s underneath the Kyoto treaty on global warming that allows countries in the industrialized world, such as in Europe, to go around the world and to find the lowest cost ways of controlling emissions in the developing countries and then they get credit for those activities. And in addition to the clean development mechanism, there are a lot of discussions underway right now that would extend those kinds of offsets to include deforestation, other changes in land use, and other kinds of activities.
WIDE ANGLE: So Europe has the most developed market system. Can you talk about how that’s going? Are they succeeding in lowering greenhouse gas emissions?
DAVID VICTOR: The European market I think has generally been a positive experience, but it’s clearly had some teething troubles. For example, the first three years of the market, it became clear that the governments had handed out too many emission credits, and once companies figured that out, not surprisingly the price of the credits went down to zero because they weren’t very scarce. In the second round of the market, which is what’s underway right now, emission credits have been much more scarce, prices have been higher, and generally the market has functioned much better. I think one of the most important lessons that we’ve learned from the European experience is that companies have a very limited number of options available to them for controlling emissions. Over the long term – ten or 20 or 30 years – they can invest in all kinds of new technologies that have much lower emissions, but these markets don’t yet work in the long term; they only work in the short term. The time horizon for Europe is about five years. And so any individual company is pretty tightly constrained in what it can do, and so the companies have been scrambling to try and figure out how they’re gonna fly with these emissions. And I think that’s going to be one of the biggest challenges to the future.
WIDE ANGLE: Are there any examples from the past that we can look to on this?
DAVID VICTOR: Until the European system for greenhouse gases, the largest market for pollution in the world was in the United States. It’s a scheme that was created back in 1990 as the country tried to tighten its rules on acid rain; what it did is it created a market for emissions of sulfur dioxide, which was one of the leading causes of acid rain. And then allocated emission credits to the large coal-fired power plants around the county. And then set up a market so that those plants would trade those emission credits. And the experience with the sulfur trading program, as it’s known, has generally been very positive and it’s almost certainly the case that the sulfur trading program has lowered the cost to the United States of meeting its limits on theses acid rain-causing gases.
WIDE ANGLE: And can you talk about why markets work better than taxation and regulation, if you think that’s true?
DAVID VICTOR: Well, my view is that the best policy for dealing with global warming wouldn’t be a cap and trade system, it would be what economists call a carbon tax. Governments would put a price on emissions of carbon dioxide and other greenhouse gases, but carbon dioxide is the most important one; that’s why it’s called a carbon tax. And then companies would know exactly what it would cost to comply with this requirement. That would make it much easier for companies to plan their investments. In a cap and trade system, like the system that exists in Europe, it’s harder to plan investments because you don’t know what the price of emission credits is gonna be. So that would be the ideal policy. The real world almost never adopts that ideal policy because the companies that are most exposed to the cost of complying with the policy are worried that the taxes they pay are going to go into the government and get squandered. They tend to favor cap and trade systems because most cap and trade systems, when they’re set up, give away the emission credits more or less for free to the existing emitters. And so from the perspective of an individual company, looking at these two different options, the cap and trade system always looks better because you are given, on day one of the system, an extremely valuable asset, and that’s politically why almost all governments today, when they’re focusing on using markets to control global warming gases, they’re focusing on cap and trade systems rather than taxes.
WIDE ANGLE: To what extent do you think this issue should be tackled locally versus internationally?
DAVID VICTOR: Well, I think here also is an area where the ideal policy operates very differently from politically practical policies. In the ideal world, you’d get every country on the planet together, you’d agree on a common policy that would apply for 50 to 100 years down the road and then firms would be able to see rules and start to adjust their behavior. That ideal world doesn’t exist because you can’t get all the governments in the world around the table and get them to agree on a common set of rules because they have different interests, and even if they did agree, one big government could simply decide to walk away from the policy that became inconvenient, as the United States did in the case of the Kyoto Protocol. So what’s happening in the real world is exactly the opposite, which is that strong policies are emerging not from the global level, but they’re emerging in particular locales and countries and regions that care most about the climate problem and also have the greatest administrative capacity to implement the rules needed. So we have an emissions trading system that now applies across Europe. We have in the United States no federal policy really to speak of but we have many individual locales – including the state of California, states in the Northeast – that are adopting their own individual policies and eventually those will morph into a kind of federal policy. You have New Zealand has a policy, Australia has a policy. You have lots of different policies that are only partially connected to each other, and while that is economically much more costly than an optimal global climate change strategy, the optimal global strategy is, in the real world, not really possible.
WIDE ANGLE: But the international community is still working towards a successor treaty to Kyoto?
DAVID VICTOR: Yeah, they’re working on a successor treaty to Kyoto. The deadline for their efforts is the end of 2009 at a meeting in Copenhagen. The agenda for those discussions is extremely long and complex. Most of the issues are going to prove very, very difficult to gain agreement. My own view is that they won’t meet the deadline in 2009, but they will come up with some kind of an agreement. But I think when we look at the details of the agreement, it’s not going to be a strict, aggressive global treaty that addresses all emissions from all countries. It’s going to largely reflect what individual countries are willing to do on their own. And that’s why I as a longtime observer of this have been much focused on what governments individually are willing to do, and in close coordination rather than on these global treaties.
WIDE ANGLE: Okay. And you think this time around the United States will be a part of this?
DAVID VICTOR: I think this time around the United States will be a part of it because both the presidential contenders have serious and strict policies on climate change. That said, I think one of the most difficult issues for the United States as it re-engages with the rest of the world will be that it needs a strong and credible domestic policy before it can be seen as credible in other countries. And that process will be a very slow one.
WIDE ANGLE: And that brings me to my last question, which is about the two presidential candidates in the United States and their views on this.
DAVID VICTOR: Well, so for full disclosure, I’m one of many people who’ve been advising the Obama campaign. But what I think is pleasantly striking is that both candidates envision big reductions in emissions over the next 40 years, and both of them favor similar kinds of policies – cap and trade systems. Both of them favor re-engaging with the rest of the world. I think the really difficult issue won’t be the president; the difficult issue will be Congress. That real policy requires putting together a coalition of supporters in Congress and so far we’ve fallen short on that. There are very, very long lags in the energy system, and so strict policies today will not produce rapid visible changes. What they will do is produce a whole series of new technologies and investment patterns that over ten to 20 years will start to become evident. And what worries me most is that the United States in particular doesn’t have that policy in place, and so we’re not starting to see that radical change early in the technology pipeline so that come 2020 and 2030, we actually are starting to deploy new technologies. The tenor of climate science in the last decade or so has been to identify lots of new ways that the climate is more sensitive, changing in more dangerous ways, and there are more nasty surprises lurking in climate change than I think most people expected when they first focused on this one or two decades ago.
Next we have Jake Whitcomb, the founder of Brighter Planet in Middlebury, Vermont.
WIDE ANGLE: Can you start by explaining what your company does?
JAKE WHITCOMB: Sure, well, maybe the best way to address that question is to go back and tell you a little bit about our roots. We started as a class project in Middlebury College and the core mission was to basically address an environmental issue – climate change – with economic solutions. The class was called “Environmental Economics.” So we’re looking for ways to basically create practical solutions to climate change for the everyday person. Previously, it’s been difficult to get involved in climate action. It’s either been costing people extra money to buy a Prius, or you have to change your lifestyle to maybe ride your bike to work. And now we’re looking for ways to make climate change action more accessible. So Brighter Planet has gotten involved in the carbon offset market as a way to help people build renewable energy projects. In particular, our flagship project is a credit card issued by Bank of America and Visa in partnership with Brighter Planet, and with every purchase you make, a percentage of that goes towards helping build renewable energy projects across the U.S.
WIDE ANGLE: Just on a practical level, in your company, what’s some examples of how much it costs to offset things? For example, if I flew from New York City to London or went on a cross-country road trip, how much would it cost to offset those?
JAKE WHITCOMB: Basically every time you drive a mile in your car – I’m assuming you have a car that drives about 23 miles per gallon of gasoline that you burn – you are emitting about one pound of CO2 per mile. And what happens is that for every gallon of gasoline you burn, you’re emitting about 20 pounds of CO2. So, for the credit card for example, each time you spend a dollar on the credit card, the inherent reduction in CO2 is about three pounds of CO2. So what you’re doing is, if you spend a dollar, that’s approximately like taking a car – the average car – off the road for about 3 miles.
WIDE ANGLE: Just to sort of take the skeptic’s perspective on this, by giving customers points for spending more money on their credit cards, are you in a way encouraging them to buy things like gasoline and plane tickets that we usually buy on our credit cards but that maybe have a negative impact on the environment?
JAKE WHITCOMB: Well, it’s a good question. When we talk about credit cards, we’re looking at a saturated market. The average American consumer now has about 4 ½ credit cards, if you can believe it, in their wallet. For now, instead of the project, we are basically just looking to harnessing existing payment structure as a way to do – basically swap out airline miles that are currently polluting with something that is actually helping to reduce that pollution. So while it is relying on some of the consumption that we do on a day-to-day basis, you know, we say “Do not use this card as a way to encourage additional spending; simply use it as another tool in, you know, sort of your environmental quiver.”
WIDE ANGLE: So as your customers spend, a percentage of the money goes to offsetting carbon emissions, and for that you’ve partnered with a carbon trading company. Is that right?
JAKE WHITCOMB: That’s right.
WIDE ANGLE: So what methods does that company use for offsetting carbon emissions?
JAKE WHITCOMB: There are a lot of different methodologies that can help us create a reduction and renewable energy. We’ve partnered with Native Energy, and the way they’re creating offsets is actually called a “Future Stream” model. What we’re doing is going out and finding community-based renewable energy products that require a certain amount of upfront capital in order to be economically feasible. This is really the major issue with renewable energy currently is it’s simply not economically competitive with the more conservative, you know, prehistoric forms of fuels – coal and fossil fuel. So, Native Energy…their mission is to help actually swap out the dirty energy that’s feeding our electricity grid right now with cleaner forms of energy. And by helping support renewable energy projects via their carbon offsets, what Brighter Planet is doing is effectively taking clean energy – these community-based, farmer-owned, sometimes wind turbines and farm methane, and other types, solar, etc. – and actually replacing the dirty energy on the grid with this clean energy. And what you get is an inherent reduction in the amount of CO2 that’s being released into the atmosphere. And that’s the process of carbon offsetting.
WIDE ANGLE: Right now most schemes for reducing carbon emissions in the U.S. are voluntary.
JAKE WHITCOMB: Right.
WIDE ANGLE: As a carbon entrepreneur, do you think that we need more regulation or do you think we can leave this up to market forces?
JAKE WHITCOMB: Well, that’s actually a great question. First of all, the voluntary market exists currently in the U.S. because we have not signed on to the Kyoto Protocol or harnessed some other political forces that might help put a price on carbon dioxide. The voluntary market is actually playing a very critical role in our opinion. It’s helping educate new consumers about what they can do to address climate change, and it’s also helping sort of gain this force, this movement – the environmental movement – and allowing it a new tool to help tell some of our political leaders, “You know, it’s time to make a move.” Not only environmentalists are getting involved in climate action now; everybody – consumers, businesses, governments, local municipalities – are now addressing it. And it is time to make a change. So while the voluntary markets do help create substantial reductions in the amount of CO2 released into our atmosphere, perhaps the greatest environmental benefit is actually from just telling the right story to our politicians.
WIDE ANGLE: What motivates an individual to voluntarily decide to offset their carbon emissions?
JAKE WHITCOMB: You know, we struggle with the issue. Why would somebody give up an airline miles card that gives them the ability to fly to see their Grandma over Christmas in order to basically support the renewable energy construction somewhere else in the U.S.? It feels less tangible. And what we need to do is make this feel much more tangible to the American consumer. And the way to do that is really through education. The motivation is very clear when you’re seeing, you know, some of the climate refugees and a lot of the global disasters that are being perpetuated by the warming temperatures. Flooding, you know, the emergence of malaria in new places, droughts. So the motivation really needs to be through self-discovery and education is the number one methodology and I’m hoping we can see to get people involved.
Next up is Shawn Burns, founder of Carbon Credit Corp., a carbon trading company based in Vancouver, Canada.
WIDE ANGLE: Can you start by explaining how the regulatory landscape in Canada differs from the U.S. when it comes to carbon trading and carbon emissions?
SHAWN BURNS: I think things are pretty much the same. I think both Canada and the U.S. have been avoiding carbon trading and carbon legislation. Although we’re a signatory to Kyoto, we haven’t actually implemented anything. It’s similar in that the federal government here is a bit slow in that the initiatives are being led by the provinces, much like in the U.S. where the states are taking the initiative. What’s happening here is the province of Alberta, which is sort of the Texas of Canada, has come out with North America’s first regulated market.
WIDE ANGLE: So can you explain your company?
SHAWN BURNS: I had done some thesis work on carbon farming and I was looking at how the monetization of carbon credits could improve sustainability for rural livelihoods. We started looking at how farmers could benefit from a carbon-constrained economy. So basically the company was set up initially to help farmers receive benefits from carbon credits. From there it’s expanded on into other areas. What I think is interesting is that you’ve got farmers being important agents in global climate change. The basic kind of business, the farm, in Canada and the U.S. is now an important player in the global climate change world.
WIDE ANGLE: So one of the ways your company earns carbon credits is through agriculture. Can you give some examples of how improved agricultural practices can help reduce carbon emissions?
SHAWN BURNS: There’s lots of carbon that can be stored in wood, leaves, plants, and soil. And so there’s lots of things that can be done to improve the storage of carbon naturally. One of the main ones is that over the last 100 years, about 75 percent of all the carbon stored in soils in North America has been released through tillage practices. So they’re turning over the soil every spring. And by adopting what’s called a “no till” or “low tillage” procedure or practice, you could reabsorb most of that lost carbon from the atmosphere back into the soil. There’s many things they can do on a farm to capture methane that’s being emitted, you know, from manure and composting to absorb more carbon in soil and trees and windbreaks.
WIDE ANGLE: And is this an accepted method of carbon credits under Kyoto or do you think it will be under future agreements?
SHAWN BURNS: I think so. The first phase of Kyoto to a large extent ignored agriculture, forestry and other land use. “AFOLU” is the kind of nickname for it. I’m not sure why, but most of the countries that have huge forest and land bases in agriculture were not included and sort of smaller European countries were the ones that were involved in the first round. Canada, Australia, the U.S. just weren’t part of Kyoto’s first round. But I think in this next round, agriculture and forestry will be their big focus. Forestry is especially a huge focus right now. Someone estimated that the loss of absorption of carbon in one year from the cutting of forests in Brazil was equal to two or three years of Kyoto benefits, so that kind of put the whole thing in perspective.
WIDE ANGLE: You have a partnership with British Columbia’s First Nations, which for an American audience is sort of the equivalent of Native Americans. Can you tell us about that?
SHAWN BURNS: Well, we’ve worked with some of the First Nations tribes in British Columbia helping them to understand how they can receive benefit, I guess, from carbon credits. I think the main issue for them is sustainability. Many of the villages are in very remote areas and there’s heavy unemployment, 50 to 80 percent unemployment. But what’s happened now is there is an opportunity to become, if you like, stewards of the forests. There’s a new type of carbon credit called a “RED credit” or “reduced emissions from deforestation.” And these type of carbon credits drive money back into local communities and peoples to create jobs for them in the forestry sector maintaining forests as carbon lungs, if you like. And so this is an area we’re focusing on in helping local people with.
WIDE ANGLE: I noticed that you have an M.B.A. I was wondering if you could talk about the role of market-based solutions in solving the carbon problem?
SHAWN BURNS: Good question. Personally, I believe in sort of business for development. I believe that properly oriented businesses can be greater agents of change in the world sometimes than government aid agencies or even NGOs. In the business world, it’s all tied to companies focusing on corporate social responsibility. Also on a triple bottom line. Those are companies that set social and environmental goals as well as financial goals and set targets to achieve them. That was my interest at the M.B.A. was how can you create businesses that are socially responsible that will help mitigate global climate change?
WIDE ANGLE: If it’s on a voluntary level, how do you convince companies that it’s important to care about these issues?
SHAWN BURNS: There’s a difference between voluntary and pre-regulatory. I think a lot of larger companies can see regulation coming and want to change earlier.
WIDE ANGLE: So is there a lot of money to be made in the carbon market?
SHAWN BURNS: Well, last year the world carbon market was 64 billion dollars in trade; this year it’s estimated to be 98 billion dollars in trade. So potentially there is a lot of money to be made. Those numbers largely exclude North America because the markets here are just getting going. The U.S. will be the single largest market in the world. It’ll be about 200 billion dollars in volume once it turns on.
WIDE ANGLE: And do you see that as inevitable?
SHAWN BURNS: I do. Yes, absolutely. Both parties are supportive in general of carbon trading and greenhouse gas emission limits so it’s clearly inevitable.
Finally we have Dave Sag, founder and executive director of Carbon Planet, an Australian-based global emissions management consultant company.
WIDE ANGLE: Can you start by explaining what Carbon Planet is?
DAVE SAG: Carbon Planet is what we call a full-spectrum carbon management company. It’s divided into four principle divisions: primarily audit and advisory services, a carbon commerce division…then we have a corporate education division. We also underpin that with a part of the company called My Carbon Planet, which is consumer outreach. The carbon economy itself – it’s really the world’s response to the threat of climate change. And so Carbon Planet exists really to cover both the polluters and, for want of a better term, the de-polluters.
WIDE ANGLE: Can you give us an overview of the regulations and trends in Australia relating to carbon trading?
DAVE SAG: Australia is in the middle of one of the most significant economic reforms it’s ever undertaken. Since the change of government from last year, the new Rudd government, the labor government, has ratified the Kyoto protocol, which has been very roundly applauded here in Australia. And for us that’s been quite interesting because we’ve seen a real change in the kind of customers that come to us. It’s sort of been less now about marketing; it’s more now about finance people. Minister Penny Wong, who’s the minister for climate change, announced just recently the green paper which is sort of the first step in the public consultation process of how carbon trading might work in Australia. They’ve gone for very broad coverage so almost every industrial sector in Australia is going to be covered by the emissions trading scheme with the exception of forestry, but there is going to be the opportunity to generate carbon offsets using reforestation.
WIDE ANGLE: One of Carbon Planet’s sources of carbon credits is forestry, a method with many skeptics. Can you explain this debate?
DAVE SAG: Forestry’s really quite controversial, and Carbon Planet’s always been quite a defender of forestry. The main problem I guess people have with forestry relates to the science of how you can accurately measure the carbon absorbed by the forest. A lot of people kind of mistake forestry programs for what I call ad-hoc tree planting schemes where, you know, well-meaning community groups go out and plant a few trees but then they don’t maintain them. And that’s tainted the image of forestry; proper forestry programs. There’ve been studies that show that forestry has localized warming effects, but those studies are mostly done on the Northern Hemisphere in areas where there’s a lot of snow. And basically what they’re saying there is that if you replace sort of snowy landscape with trees – snow’s white, therefore reflects heat; trees are green and they absorb localized heat. So they’re saying trees contribute to global warming which is obviously crazy talk. Forestry has been sort of set aside under the Australian plans for emissions trading as one of the only real ways to generate carbon offsets. We’ll see how that plays out. I mean, we’re big supporters of forestry and I believe Australia has the potential to be a forestry superpower. Certainly we sell a lot of forestry credits to the U.S. We don’t sell a lot into Kyoto countries because things like the Kyoto gold standard, well, they specifically exclude forestry. My feeling is Europe just doesn’t have enough space to put forests in. And so as a result, we don’t get a lot of love from Europe there.
WIDE ANGLE: Can you explain your role in the film, “The Burning Season”?
DAVE SAG: Carbon Planet was approached by Cathy Henkel, one of the filmmakers on the film “The Burning Season,” which is a film about…essentially about avoided deforestation in Indonesia. 20 percent of the world’s carbon emissions come from deforestation. These forests that need protecting are in politically unstable areas, by and large. And one of the major threats to these forests is illegal logging. So it’s quite controversial and also it sort of represents a wealth transfer because you’re looking at revenues from carbon credits for essentially valuing forests in place. And those revenues aren’t going to governments; those revenues are going to be going to communities, forest people themselves. So it represents quite a significant turnaround. “Burning Season” obviously, because it’s a film about avoided deforestation, it’s about the carbon economy, so the filmmakers contacted us to see if we could not only help them find carbon credits and audit the production of the film so they knew what the carbon footprint of the film was and then offset their carbon footprint. They also wanted to know if we could find carbon credits sourced from areas they were filming. And so we put a lot of effort into making sure the carbon abatement we provided for “Burning Season” was sourced from areas where “Burning Season” itself was set. You know, we’ve done a lot of work with filmmakers and we look forward to more.
WIDE ANGLE: You’re part of the dot com boom, and recently people have been drawing comparisons between that era and the new era of carbon markets. What’s the relationship there?
DAVE SAG: Certainly there’s a feeling in the air about the carbon economy. I mean, it’s important to understand – the carbon economy is the world’s response to climate change. The dot com boom was largely fueled by revenues dedicated to solving the Y2K problem. And a lot of people look back on Y2K and sort of go, “Well, nothing happened” – forgetting that globally we spent about 6 trillion dollars making sure nothing happened. Climate change is going to be a similar thing where I think hopefully we’ll look back in 20 years and go “Well, nothing happened” – forgetting of course that we’ve restructured the entire world’s economy and we’re going to be dedicating trillions of dollars to solving these problems. There’s a lot of money rushing into green tech, clean tech, carbon tech, that kind of thing. But unlike the dot com boom, it’s not a bubble. It’s not fueled by a kind of, you know, enormous fictional mania, it’s fueled by a real sense of urgency. This is driving a massive economic shift and it’s quite exciting.