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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In 1994, ensconced in his estate on Lake Geneva, Forgach had a midlife crisis. He'd discovered that "my friends were just friends of my assets," so after nearly 30 years as an expatriate, he returned to Brazil to devote himself to his passion for tropical birds. While founding sanctuaries for macaws rescued from international trafficking, he discovered the still-nascent concepts of sustainable forestry and environmental investing, and ended up managing the first World Bank biodiversity venture fund. The plug was pulled at the start of the Iraq War (thanks, he says, to "that ass in the White House"), but immediately afterward, his friend Gus Speth, the dean of Yale's FES, offered him a teaching fellowship. "My job was to be a trampoline for these students," Forgach says. "Before, the environment-school guys would graduate as biologists in the fields with the butterflies. And the business-school guys, all they wanted to do was make a killing at a hedge fund and buy a house in Greenwich. This program put a heart in the business executive and a head on the forestry-school guy."

Forgach himself seems to possess both a head and a heart, but ultimately, he emphasizes, he's a banker. "My argument is that we in business are the best equipped to handle these issues. The environment was much too serious a business to give to a bunch of bureaucrats who couldn't get a job in the real world," he says. "And I have a big bone to grind with [nonprofits]. They are interested in doing Indiana Jones in the forest, which is much more fun than shaping consumer opinions."

It's no surprise that his former students volunteer statements such as, "I don't think wealth is inherently bad. I philosophically feel like, unless markets value the environment, it will be destroyed," as Kuppalli puts it. Says another Forgach disciple from Yale, now in private equity: "True sustainability has to depend on economic performance."

Forgach helped goose the growth of the carbon market by populating the field with like-minded, energetic evangelists. And then he followed them back into the marketplace. "I was getting bored [at Yale]," he says, "and I was getting poor." When Baker & McKenzie, a leading international law firm, came to FES on behalf of a client looking for experienced environmental executives to start up a carbon business, Forgach stepped forward. He's now the chair of a private-equity firm, Equator Environmental, with a $170 million fund for sustainable forestry assets, including carbon credits from timber. "These guys half my age said, 'The environment? This is ninny business for faggots and fairies. For girls.' I said, 'No, this is the future. If you don't do it, you'll be out of business.' "

With sons and daughters of Eli at the heart of the emerging carbon markets, one of the clear beneficiaries is Yale itself. While Harvard may lead its rival in the size of its endowment, Yale has staked a claim as the green Ivy of the future. The school has a brand-new Center for Business and the Environment and a high-profile campus-sustainability initiative, and president Richard Levin is being honored worldwide as an environmental leader. Yale's new philosophy could be summarized by the title of the best-selling book by Daniel Esty, founding director of the Center for Business and the Environment: Green to Gold. (Esty himself serves as a paid consultant for corporations such as BP, Coca-Cola, Honeywell, Shell, and Unilever.) "Our program at Yale reflects an understanding that the critical point of leverage for management of natural resources is the business world," Esty tells me. "I think it's very exciting to see how students are jumping right into that space."

Katherine Hamilton (FES class of '06) is the carbon-market manager at financial-information firm Ecosystem Marketplace, the Bloomberg of the carbon market. Kevin Tidwell ('06) is an associate at the Global Environment Fund, which is making several $30 million to $60 million investments in South American and African forests. Marc Hiller ('07) works for a $500 million shop called International Forestry Investment Advisors. Bo White ('09) has researched forest-carbon-credit proposals for Papua New Guinea. Monica Araya, who earned a PhD from FES in '06, is now at $1.5 billion Climate Change Capital. The list goes on.