Every year deliberately lit fires rage across Indonesia. They destroy pristine rainforest, endanger orangutans and contribute to climate change. A young carbon trading entrepreneur goes in search of a solution.

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Carbon trading

Carbon trading (aka ‘emissions trading’, ‘offsetting’, or 'cap and trade') is one of the fastest-growing segments in financial services, and existing companies are scrambling for talent. Their goal: a slice of a market now worth about $30 billion, but which could grow to $1 trillion within a decade. In its flourishing, wild-west exhilaration, the carbon trading boom resembles the gold rush and the dotcom explosion of the early 90s.

How does it work?
Polluters are purchasing carbon credits to cancel out the carbon emissions they produce. The credits, sold by entities which store more carbon than they make (or produce less carbon than their cap, and are therefore in 'credit'), are traded on a market very similar to a futures exchange. The largest market is in the EU. The companies are trying to become 'carbon neutral', which ultimately means stabilising the overall amount of carbon entering the atmosphere in order to slow climate change.

The carbon trading market is divided between voluntary and mandatory offsetting. Many business, industry, and finance juggernauts have voluntarily chosen to offset their carbon emissions. Other companies are bound by their nations' ratification of the 1997 Kyoto Protocol and for them, offsetting is mandatory. Either way, projections infer that emissions caps will become mandatory in all markets in the near future. Most political and business leaders are trying to get on board with cap-and-trade before they miss the boat.

In voluntary offsetting, polluters enter into offsetting arrangements with parties who are in ‘carbon credit’, as was the case with mining giant Rio Tinto Aluminium’s greenhouse emissions offset in Queensland, Australia. The scheme was facilitated by The Carbon Pool and is known as “Minding the Carbon Store”. Rio Tinto paid a consortium of Queensland property owners for the carbon rights to the trees on their land; in return the landholders have guaranteed the protection of their mulga ecosystems. With this exercise, Rio Tinto (which, as a mining giant, suffers a serious credibility problem with environmentalists), attempted to undo some of its negative environmental impact.

Until now, carbon trading has been a relatively unregulated frontier industry. It sprang up in response to the compulsory emissions targets set by the Kyoto Protocol, and a number of the organisations which initially brokered offsetting deals have proven unreliable. If 'cap and trade', (the basic system of emissions trading) is to work, global standards must be agreed upon, which requires the support of the international community. Over the last ten years, while big business and countries like the USA and Australia have repudiated the reality of climate change, carbon trading entrepreneurs have popped up on the fringes of the free market. Because they operated in an atmosphere of denial and uncertainty, they initially developed without regulation or a code of conduct. Market-based climate change solutions like carbon trading may be pivotal to our future, but the hitherto shambolic state of the market put policymakers behind the 8-ball.

Global warming has been an acknowledged scientific fact for decades - now even the sceptics are changing their tune - and yet humanity still can't bring itself to abandon carbon-based fuel in favour of renewable energy. Some radical activists say that carbon trading undermines individual responsibility; on the contrary, voluntary offsetting by individuals forces them to acknowledge the value and the cost of things they take for granted. It helps to create a culture of 'enlightened self-interest': a paradigm shift essential to the development of a more sustainable society.

A major issue with carbon trading is that the 'system' requires us to measure the immeasurable: how much carbon is being emitted, and exactly how much is being saved? What price do we ascribe to the stored carbon? Governments and scientific institutions are racing against time to develop reliable systems of verification.

The dark side of carbon trading is that it allows us to persist with the fantasy that we can carry on living as we are without exterminating our own species and everything else on the planet. We're approaching a 'critical mass' in terms of awareness of climate change; it can't be too long before the "hundredth monkey" knows of the situation and we all commit to doing something about it. But what?

The alternative to 'cap and trade' is that we just pollute less by sacrificing the things we have that make pollution. Number one on that list is fossil fuel and anything that runs on it: your car. Your TV. Your air-conditioner and central heating. Your kettle. Your computer and iPod. Is anybody going to do that? Not unless they absolutely have to, and it will take time we don't have. Supporters of carbon trading say that it buys us that time.

The controversy surrounding carbon trading raises the inherent moral questions at the heart of the issue: how much is clean air worth? Or a rainforest? Or a planet we can survive on?

What would we give up in order to keep them?

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