Can Carbon Credits Slow Global Warming?

By: Anya KamenetzMon Jun 23, 2008 at 4:35 PM

Legal limits on greenhouse-gas emissions are coming fast, with a $1 trillion carbon market emerging. At the core: A cadre of young, idealistic Yale forestry grads. But will carbon offsets do anything to slow global warming?

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Camile Rebelo | Photograph by Amy Eckert

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John Forgach | Photograph by Amy Eckert

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Camille Rebelo talks fast, with an intimidating British accent. The Kenyan-raised daughter of an Indian father and English mother, she's back from Indonesia and on her way to Mozambique when we meet at a coffeehouse near Yale University, where she earned a master's from the School of Forestry & Environmental Studies last year. Rebelo's devotion to tropical forests dates to her gap year after high school, which she spent doing wildlife surveys and sleeping in a hammock in Belize. "I went to university to study biology and figured I wanted to be back in a forest as soon as possible," she says.

But today she's no pith-helmeted biologist or furry eco-warrior eking out a living at a nonprofit. Instead, Rebelo has joined an elite for-profit field that barely existed eight months ago: carbon forestry. "I focused my courses at Yale around independent studies to look into this stuff," she says. "Back then, in 2005, it was still unknown." Now, "it's growing like crazy, and pretty much any forestry student you speak to at the moment wants to do [carbon credits]." In fact, a network of recent Yale forestry grads like Rebelo, many of them with joint MBAs, have been finding careers in the unlikely worlds of hedge funds, private equity, asset management, and corporate consulting. They are exerting tremendous influence over the brand-new market in greenhouse-gas credits, which is projected to reach $1 trillion in the United States alone. The work is prestigious, it's trendy, and it's surprisingly well paid. "I'm making five times what I ever thought I'd be making as a tropical forester," Rebelo says.

The word "forester" evokes a spotted-owl census taker or maybe Julia Butterfly Hill camped in a redwood. And in the course of its history, stretching back over a century to the early days of the National Park Service, Yale's School of Forestry & Environmental Studies (FES) has pumped plenty of those types out into the world. But as another recent grad explains, "There aren't nearly as many communists in the forestry school as there were 20 years ago." Maybe money really does grow on trees.

"Capitalism, long the alleged enemy of the environment, is today giving new life to the environmental movement." That was one of California Governor Arnold Schwarzenegger's applause lines at a speech he gave at Yale this past April. It's also the basic philosophy behind cap-and-trade policies -- that government should set the rules and step back, letting a market emerge, as the best way to fight global warming.

The theory is that the invisible hand of the markets will find the fastest, cheapest, most efficient way to make the necessary reductions in greenhouse gases. Under a cap-and-trade system, pioneered in the United States for acid rain, a government sets a national ceiling on emissions (the cap), which lowers annually. The clever CEO will, in principle, figure out a way to reduce her company's emissions to below her allotment. By carefully measuring how much carbon dioxide she's saving, she can sell the difference to someone who is unable or unwilling to meet his own goal (the trade).

In Europe, legal limits to greenhouse gases were put in place under the United Nations' Kyoto climate treaty, which the United States refused to sign; the resulting cap-and-trade market, launched in 2005, is the world's biggest. No such cap exists in U.S. law -- yet. But with both John McCain and Barack Obama publicly endorsing cap and trade and several bills circulating in Congress outlining different models, U.S. companies are beginning to see that legal limits on carbon are simply a matter of time. Looking to shape national policy, a coalition of powerful corporations -- heavy hitters such as Alcoa, BP America, GE, and Shell -- have formed the United States Climate Action Partnership, joining with big enviro organizations to lobby for cap and trade. To get a jump on potential liability, U.S. companies are buying carbon credits in anticipation, creating a voluntary carbon-offset market here.

The likes of Goldman Sachs, JPMorgan, and Morgan Stanley, along with specialized environmental-investment firms such as EcoSecurities and Natsource, have begun buying, selling, managing, and advising on hundred-million-dollar portfolios of carbon-offset projects. They're developing an array of sophisticated financial instruments that can be bundled, sliced, and swapped -- with each transaction bringing in a tidy fee. U.S. trade in offsets doubled in 2005 and 2006, and nearly tripled in 2007 to a total of $330 million. The worldwide market in carbon, dominated by Europe, already tops $64 billion.