Portrait of a carbon trader
A new breed of financial wheeler-dealers.
Thu, Apr 02, 2009 at 11:10 AM
Other financial traders find themselves whirling through London or Dubai, or at least hosting a nice dinner meeting with clients in New York. Instead, the co-founder and chief financial officer of carbon offset company TerraPass found himself trudging around a freezing-cold dairy in Michigan, helping a farmer trap methane from cow manure.
Still, he sounds excited talking about it now.
“It’s the only dairy in the US to produce electricity and pipeline-grade natural gas from dairy manure,” Tom Arnold says. “It’s showing dairies can be part of the solution.”
The problem here is, of course, global warming, and a partial way out of it may be a worldwide bartering system that allows carbon emitters to financially compensate carbon reducers. Middlemen like Arnold help negotiate those deals.
For example, somebody somewhere buys carbon offsets from TerraPass. The money from that deal buys the Michigan dairy a new environmental device: A type of mechanical digester, which would use the manure’s own bacteria to break it down, and allow the methane gas it releases to be captured. (Methane is a greenhouse gas with far greater impact than CO2.)
Buying and selling these carbon offsets is both like and completely dislike trading any other commodity, such as grain, cement or wool. It’s similar in that one company pays another for a product. But with carbon, the “product” is the absence of something. It’s the same as paying someone not to pollute.
Imagine your neighborhood wanted to reduce how much noise it could make over several years. The first year, no one’s allowed to blast their Amy Winehouse at more than six decibels; the second year, no one can go above four. But your neighbor’s volume knob is stuck at seven decibels. To compensate he pays the Jones' next door to keep their radio at five decibels. Thus the total sum of noise from your block stays within the six decibel rule.
The carbon offset market was born in 1997 with the Kyoto Protocol and came into force in 2005. Countries that signed on to it placed caps on how much carbon dioxide they could emit. But not all industries could drop their carbon emissions low enough to meet the goal, and so the trading system was developed.
Just three years underway, the carbon market is developing rapidly, and in directions few people can anticipate. A World Bank study found the global carbon market tripled to $30 billion in 2006 from 2005. Environmental recruitment group Acre Resources told Reuters recently that vacancies for specialist jobs in this general industry (which already have too few people to fill them) could multiply 50 times its current size by 2012.
Once anything is bought and sold at high volume, of course, it attracts people who know how to put deals together. But these businessmen also have to learn about earth science, government policy, international relations and the strange art of marketing something that does not actually exist as a tangible entity. That could explain why the carbon trading world has so many new jobs available—and so few people like Arnold who know how to do them.
Arnold came at it from a somewhat standard business background—an economist by training, business school at Wharton in Philadelphia. Josh Margolis, who runs the American desk of CantorCO2e, an environmental brokerage based in London and San Francisco, was heading toward government work before he discovered emissions trading: undergraduate degree in public policy, internship at the EPA, and a job inspecting for environmental compliance. Over at the London-based CarbonNeutral, the executive director Jonathan Shopley said a job applicant’s background isn’t even the main issue for a trading job.
“We are more interested in the type of person,” Shopley says. “We look for people who are highly numerate, creative, driven, commercial, team players … and global in their thinking.”
The demand for creativity in particular comes up a lot among traders.
“People focused on traditional solutions won’t solve the problem,” Margolis says. “What was deemed unthinkable two years ago will become standard practice, then be discarded in five years. We didn’t solve acid rain by stopping coal. We did it by finding clean coal and alternative fuels.”
Which brings us back to Tom Arnold examining cow manure in Michigan. Somehow, a business (let’s say, a cogeneration plant) trying to comply with California law or maybe just an eco-minded consumer pays for a piece of farm equipment 2,000 miles away. In between are people like Arnold, figuring out how to make it work on both sides.
“At the core, you’re trying to partner with operations,” Arnold says. “You’ve got to be sensitive that farmers are in the milk business. What we do has to fit with that.”
Such partnerships lie at the root of this multi-billion-dollar market. Even though generic carbon offsets now get traded on the New York Mercantile Exchange and the Chicago Climate Exchange, they all start with particular projects. Shopley remembers hammering out Avis’s first carbon offsets in the late 1990s. Margolis recalls Yahoo buying carbon credits from a wind turbine operation in India— two companies that otherwise would have no direct contact. Arnold remembers so many other dairies, so much more manure.
As Magolis puts it, “Trading is cool because it allows you to pay people to do the right thing. You walk into plant and say ‘If you do the right thing, I’ll give you money.’”
Story by Barry Lank. This article originally appeared in "Plenty" in January 2008.
Copyright Environ Press 2008
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