Mining for carbon gold

The civilized world is starting to profit from pollution.

Published February 15, 2006 8:27PM (EST)

In South Africa last week, attendees at the Investing in Mining Africa conference got an earful about carbon credits.

From Harmke Immink, a manager of sustainable resources for PriceWaterhouseCoopers, they heard about the possibility of cashing in on attempts to mitigate global warming. According to Immink, South African companies stand to earn some $400 million in cold hard cash over the next five years, provided they invest in emissons reductions projects. For the mining industry, this could include such things as capturing underground methane gas to use for power generation or other energy efficiency schemes.

"If you are a big emitter, you are sitting on a large carbon asset you could realize," Immink said, according to The U.S. may not have ratified Kyoto, but that hasn't stopped the emergence of a bona fide market for carbon credits. Since January 2005, the European Union has pushed ahead with its own targets for reducing emissions, and that has begun to create a real demand for carbon credits.

Under the Clean Development Mechanism (CDM) of the Kyoto Protocol, emissions producers in developed countries can invest in emissions reductions projects in developing nations, or purchase carbon credits, to offset their contributions to global warming. For resource-rich nations like South Africa, the opportunity is obvious.

Immink had a vested interest in her pitch. PriceWaterhouseCoopers is one of a handful of firms approved by the United Nations as a "designated operational entity" capable of auditing carbon credit projects. Qualifying as an emissions reduction project requires jumping through immense bureaucratic hoops -- it's not an easy or quick process, and it must be audited.

Another vested interest at the conference was South African investment firm Sterling-Waterford, which bills itself as "a preeminent player in the emissions market internationally." Sterling-Waterford presents itself as a kind of middle man in the emissions-trading business. The company identifies projects that can generate carbon credits, and then pays cash for the rights to own those credits when they mature. It then offers the general public the chance to purchase a stake, without having to go to the trouble of evaluating whether an individual project is a good investment.

A close look at Sterling-Waterford's investment brochure reveals an odd mix of global warming science, analysis of the carbon credit market, and direct encouragement "to become involved in a venture that also aids the environment."

Ideally, there should be no need for that last part. If the potential for profit in the carbon credit market is real, that should be sufficient to convince investors to sign on. Layering on the socially responsible investing come-on is almost too much -- it suggests that the financial fundamentals aren't quite good enough to carry the day.

And yet, there is possibly no greater service that can be done for the future of humanity and the earth than to create an economic incentive not to pollute. If kick-starting the carbon trading markets requires overt political appeals, so be it.

The environmental and energy blogospheres last week were alive with mention of a BBC report that noted that if the costs of oil company carbon emissions were factored into their balance sheets, the immense windfall profits they are currently enjoying as a result of high energy prices would vanish. At first, I was a bit leery of the news. Transforming billions of dollars of profits into losses seemed a bit quixotic, the kind of thing environmentalists like to do to torture themselves.

But on a quite practical level it is precisely such calculations that explain most clearly why the United States has failed to ratify the Kyoto Protocol. While 84 other countries are on their way to implementing incentives that encourage investment in carbon emissions mitigation and the development of sustainable energy, the U.S. has held firm against it. And that's for the very simple reason that it would cost the energy industry a great deal of money to comply, and the energy industry owns the government of the United States. It's the simplest of all possible conspiracy theories. Why does Exxon fund global-warming skeptics? Because Exxon doesn't want to pay a carbon tax.

There are some cracks in the facade. Last November, Sen. Richard Lugar, an Indiana Republican, and Sen. Joe Biden, the Delaware Democrat, introduced a "Sense of the Senate" resolution calling for the Senate to indicate its support for rejoining the international effort to stop global warming. Lugar even addressed the U.N. Security Council on Feb. 6, declaring that he has "urged the Bush Administration and my colleagues in Congress to return to a leadership role on the issue of climate change" and that he has "advocated that the United States must be open to multi-lateral forums that attempt to achieve global solutions to the problem of greenhouse gases."

So far, however, there appears to have been no movement toward a vote on Lugar's resolution. And so the world continues to burn, while President Nero fiddles.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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