Ken Silverstein EnergyBiz Insider Editor-in-Chief

An understanding exists that the growth rates of greenhouse gases and particularly carbon dioxide emissions must be cut. But there is a dispute over how. Canada, Europe and Japan are all signatories to the Kyoto Protocol that requires developed countries to cut their emissions by 5 percent from their 1990 levels. The United States would tie emissions targets to economic incentives, although the U.S. Senate is now having its third debate over whether to make such carbon constraints mandatory.

Fearing the discussion could drag on at the federal level, some states like California are setting the pace. Companies such as DuPont, Honda, Johnson & Johnson, Kodak and dozens more in Silicon Valley are keeping tabs on their state-wide emissions and are promising to make significant cuts in them. Meantime, those businesses along with the state's leadership want to establish a cap-and-trade program that allows companies that meet their emissions targets to sell credits to those that can't.

"While the U.S. is not a participant in the Kyoto trading scheme, it will eventually be part of some other global market," says Bjorn Fischer, business manager for The Climate Trust in Portland, Ore. "We believe the U.S. will soon be the host of the largest emission trading market in the world, and that market will include project-based offsets."

CO2 emissions rose 27 percent from 1990 to 2004, says a new report by a coalition of investors, environmentalists and utilities. And the examination predicts a bigger increase in the years ahead because of the expected growth of coal-fired plants that cause much of the CO2 releases. At least 130 new coal plants are being proposed across the U.S., leading the Energy Information Administration to project a 66 percent increase in coal-based power production and a 43 percent increase in CO2 emissions by 2030 if no pollution controls on such releases are required.

The non-profit Climate Trust takes money from emitters and puts it into low-emission technologies. Certain technologies -- at this point -- are out of reach, says Fischer, pointing to zero emissions power plants. Until those ideas reach fruition, offsets that can range from planting trees to conserving energy to developing windmills must be used. In Portland, the trust is funding energy efficiency measures such as high tech windows, floors and ceiling insulation in apartments and new commercial buildings. The offsets are subsequently generated through reduced electricity.

Meanwhile, every newly built power plant in Oregon has to comply with a greenhouse gas performance standard. Basically, the facility's emissions cannot exceed those of a gas combined cycle plant, less 17 percent. The plant operators will give The Climate Trust money, which is used to initiate projects in an effort to comply with the standards. Since 1997, more than 1.5 million metric tons of carbon dioxide has been offset.

Cap-and-Trade Programs

Beyond facilitating the investments, The Climate Trust assesses the technology to ensure that all projects have a likelihood of achieving their goals. Any and all CO2 emissions reductions must also be quantified. But, offsets are not meant to be a replacement for a cap-and-trade program or renewable portfolio standards that would mandate utilities generate a certain percentage of their power from such sources as wind, solar or biomass.

The Chicago Climate Exchange and the Environmental Protection Agency's Climate Leaders is a cap-and-trade program. American Electric Power and Cinergy Corp. are participating and each has pledged to reduce greenhouse gas emissions by 5 percent before 2010. Meantime, FPL Group and PSEG are involved with other efforts and each has promised to curb such pollutants by 18 percent before 2008 and 2012, respectively.

And seven Northeast states have developed their own plan. Under the so-called Regional Greenhouse Gas Initiative, they will implement a cap-and-trade program to lower CO2 emissions -- the first mandatory cap-and-trade program for CO2 emissions in U.S. history. Right now, there is discussion within the group as to what projects would qualify as offsets and subsequently be used as tradable allowances.

Under a cap-and-trade system, companies that are pushing the limit could either take steps to cut their pollution by implementing new technologies, by switching to a cleaner-burning fuel, or by buying "credits" from another business. As the ceiling on emissions is gradually lowered, pollution levels drop. Importantly, participants in the Kyoto Protocol have developed their own trading guidelines.

Technology Factor

Critics of those trading schemes come from both the right and the left. Liberals argue that pollution levels simply concentrate in those areas unable to cut their greenhouse gases and that mandated cuts are the best way to clean the air. Conservatives, meanwhile, say that any mandatory cap-and-trade would be costly and hurt the economy.

According to Harry Alford, president and CEO of the National Black Chamber of Commerce and co-founder of United for Jobs, federal legislation now pending to adopt a cap-and-trade program would be unwise.

"There is little evidence that mandatory emissions caps actually work," says Alford. "For example, since signing the Kyoto Protocol in 1997, which mandates the reduction of carbon emissions, both Canada and Greece have seen a nearly 25 percent increase in emissions. According to the European Environment Agency, 13 EU nations that signed onto the Kyoto Protocol are on track to miss their 2010 emissions targets."

The organization believes that technology is the key to reducing emissions in greenhouse gasses and that those countries that take the lead in this pursuit will have the strongest economies. At present, it says that there are no cost-effective technologies to remove CO2 and that government interference with the laws of supply and demand when it comes to energy generation would only be economically detrimental.

Compliance with any new laws cost money. But the expectation is that tougher enforcement would expedite the development of modern technologies. And along with that, new jobs would come too. Offset programs in tandem with emissions trading schemes are furthermore to be considered intermediate steps until the tools to capture carbon emissions make it into the market.

Without a doubt, uncertainty exists about how and when climate change will occur. But, agreement exists that the earth's temperature is warming -- which could have a profound impact on human health and international economies. And that's why supporters of more progressive public policy to curb global warming say that California, Oregon and the Northeast are smart to take leadership roles.

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