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Building the Low Carbon Economy

The financial crisis seems overwhelming, with dire warnings that things may still get worse, bailout or not. People are worried about what lies ahead for business, but believe it or not the news is not all bad. There are still plenty of opportunities for green businesses and careers helping us all use resources more wisely, wasting less and saving money. Even as the traditional un-green economy run into unprecendented challenges, going green holds bigger opportunities than ever.

The financial crisis seems overwhelming, with dire warnings that things may still get worse, bailout or not. People are worried about what lies ahead for business, but believe it or not the news is not all bad. There are still plenty of opportunities for green businesses and careers helping us all use resources more wisely, wasting less and saving money. Even as the traditional un-green economy run into unprecendented challenges, going green holds bigger opportunities than ever.

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In many ways the current financial crisis and the green movement are related. Many feel that the financial crisis was entirely predictable. It all started with the idea that we could take risky sub-prime mortgages, bundle them up, securitize them, and give them a quick rinse to wash the risk away. Turns out it does not work that way, and now that things are unravelling we’re all paying the price. The climate crisis is similar. The risk created by of dumping billions of tons of greenhouse gases in the air every day are known and they are severe, but most people still believe that nature will take care of this risk for us, washing it away.

At West Coast Green on September 27, Al Gore talked about those responsible for greenhouse gas emissions, creating these “sub-prime carbon assets” loaded with risks for the environment, for the economy, and for all of us. Although the financial crisis is important today, the climate crisis and other environmental challenges are even larger long term issues. Nature is servicing our sub-prime carbon assets, and at some point this carbon debt will come due, with growing failure of the undervalued eco-systems services that nature provides. The question is whether we take advantage of the opportunity to act now, or, like the financial crisis, run into the wall and then try to pick up the pieces. Despite Kyoto and a great deal of talk, economies around the world have kept on pumping unprecedented levels of greenhouses gases into the atmosphere. The Arctic icecap melting has proceeded to an unprecedented extent in the last few years, and the carbon dioxide levels in the air continue to increase, despite predictions that slowing economies might slow down emissions. The climate continues changing more quickly than anyone thought possible.

There are solutions for climate change though, and the first steps are being taken to turn things around. Most people agree that harnessing market forces will be the best way to reduce climate change. If we use a cap and trade system to set limits on how much carbon dioxide can be emitted and provide carbon credits or allowances to polluters, the market will find the most cost effective solutions to bring emissions down. This is the approach taken in the Kyoto agreement created the mandatory carbon trading markets in Europe. Although there have been problems in the European carbon market, lessons learned are helping other carbon markets work better.

The main problem with the carbon market created by Kyoto was that it did not include the biggest polluters, particularly the US, China, India, and other developing countries. The US and China alone account for over half of the worlds greenhouse gas emissions and neither country signed the agreement. The next round of global discussions is underway, and the US Government may enact climate change legislation in the next few years, but several states and local governments are not waiting. They are taking action now and getting ahead of the game.

While most agree that a cap and trade system is the best way to address climate change, there is still vigorous debate whether to hand out carbon allowances or auction them off. By auctioning them off, the government might make significant money, something that could come in handy in times like these. A US carbon market created this way could make hundreds of billions of dollars a year for the government, money that could help offset other expenditures like investments in renewable energy, financing the energy efficiency improvements of millions of homes, or a $700 billion financial bailout.

One group taking action includes ten states in the Northeast and Mid-Atlantic regions that have formed the Regional Greenhouse Gas Initiative (RGGI) to tackle climate change, forming a mandatory carbon market. The RGGI has the goal of reducing greenhouse gas emissions from utilities, requiring them to reduce emissions or purchase carbon allowances to cover their emissions. The RGGI has just completed the first auction of carbon credits, earning the participating state governments $38.6 million, with the price of carbon in the auction at $3.06 per ton of CO2. The price of the credits was lower than originally hoped, due in part to lower than expected emissions because of the slowing economies. Some say that the reduction targets are not large enough, lowering the price of the allowances, but as with the European market things may take a little tuning to get the price of carbon right.

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California is also creating a market though the California Global Warming Solutions Act of 2006 (AB32) to help fight climate change, and joining with six other Western states and four Canadian provinces in the Western Climate Initiative. If carbon markets grow to be worth hundreds of billions or even trillions of dollars a year, this creates opportunities for carbon entrepreneurs in many ways. Greening our economy and reducing our carbon footprint creates massive opportunities in the building industry, energy, transportation, farming, chemicals, manufacturing, services, and practically every part of the economy. Greening buildings may be one way to earn carbon credits, as described in this white paper by Donald Simon of the green law firm Wendel Rosen Black & Dean in Oakland, CA. We will need to capture methane even more agressively from pig farms and landfills. One way or another, the auto industry has the opportunity to sell more efficient, and less polluting cars. Valuing eco-systems services, and putting a price on carbon, creates opportunities throughout the economy for the innovators who make it happen.

Even as the traditional economy runs into big trouble the low carbon economy is just getting started. This is a time of great challenges and many people are afraid, but its also a time of great hope, hope that we can create a better, more sustainable world, and one full of opportunity for green businesses. The choice is ours.

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About the author

Glenn Croston is the author of "75 Green Businesses" and "Starting Green", and the founder of Starting Up Green, helping green businesses to get started and grow.

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