Opportunity Knocks...Softly

The first time Michael Spear mixed up a batch of biodiesel in his kitchen, he followed the instructions to the letter, and it came out perfectly. 

The second time, the blender exploded, spewing 145-degree vegetable oil mixed with potassium hydroxide and methanol all over the kitchen. It was a five-hour cleanup, and Spear learned not to use a household blender for harsh industrial products. 

But the biodiesel worked. The Fort Myers man with a background in trucking has been making it for his own use and for friends for the past five years. Now he has plans for a company that would not only produce this renewable fuel, but potentially tap into markets for carbon credits and renewable energy credits. 

Efforts to address climate change and reduce greenhouse gases could provide new revenue sources for a state and region knocked out by the collapse of the housing market, and small entrepreneurs and major corporations see money to be made in efforts to reduce carbon dioxide and other greenhouse gases. In Southwest Florida, Spear has plans for agriculture and manufacturing operations that would benefit from a carbon market. And Lykes Bros. Inc. launched a new division in January to show other companies and landowners how to make a carbon-credit market work for them. 

But one thing is needed: consistent demand. 

That’s why they and others are banking on the Obama administration and Congress to adopt cap-and-trade policies that would jumpstart the carbon-credit industry. (Please see “A Primer,” p. 24.) 

FLORIDA OPPORTUNITIES 

“If something changes at the federal level and there is mandatory cap-and-trade, I think you’ll see a surge of participation,” says Laila Racevskis, an assistant professor in the University of Florida’s Food and Resource Economics Department and director of Florida Natural Resources Leadership Institute. And with its abundance of forestry and agriculture, “Florida has a huge opportunity to provide offsets.” 

“There’s a lot of interest in it. I get calls about it at least once a week,” says her colleague, Alan Hodges, an economist with the University of Florida Food and Resource Economics Department. The calls come mostly from those with agricultural interests and forest landowners. “There are some things going on in Florida in terms of voluntary carbon storage and offset commitments that big companies have entered into as kind of a public goodwill gesture,” he adds. Some landowners are involved in the international market through the Chicago Climate Exchange, and a group of landowners in North Florida who, through the Florida and Iowa farm bureaus, are working with AgriGate, a broker that helps small- and medium-sized landowners participate in the carbon market. 

“My feeling is that the potential for income is fairly modest,” he adds. Even in Europe, where mandatory cap-and-trade policies are in place, carbon offsets command fairly low prices. “This is not going to be a savior for rural lands. It will be a very marginal increase in revenue, maybe a couple dollars per acre per year. It’s not enough to make a difference for someone to stay in business, but every little bit of income does help.” 

There’s also the risk that so many credits could be bargained away in the legislative process that it could undermine the viability of a carbon market—which some say is already happening. When the rules were established in Europe, says Hodges, “They gave away the initial allowances and gave away too many of them.” The result was an oversupply. The market at first shot up, but then collapsed as the prices of offsets dropped. 

Still, companies large and small are already positioning themselves for a mandatory system, and for some, it does promise new sources of revenue. 

Lykes Bros. Inc., which owns a lot of land in Glades and Hendry counties, anticipates a surge of demand for consulting services in the carbon market. In January, it launched Eco2Asset Solutions LLC to provide that consulting to other companies and landowners trying to understand the carbon market and their potential places in it, either as offset providers or as carbon-credit consumers, which include municipalities, utilities and transportation companies. 

“To the extent that you have a cap-and-trade system, landowners have the opportunity to provide carbon offsets because they can sequester carbon from the atmosphere,” says John Wakefield, manager of corporate development for Lykes Bros. and senior vice president of Eco2Asset Solutions. “Landowners have a big role in a carbon-constraint world.” 

THE RENEWABLES MARKET 

So far, greenhouse gases haven’t been the primary currency of environmental protection in the United States. More focus has been on renewable energy sources. A number of states have established Renewable Portfolio Standards (RPS) aimed at increasing the proportion of energy produced from sustainable or clean energy sources, such as wind, solar, hydro or geothermal. States with RPS require utilities—the primary target of the regulations—to meet certain energy-production goals, so instead of greenhouse gases, the commodity is a Renewable Energy Certificate (REC). 

“For instance, if you’re generating X amount of energy, 20 percent shall be renewable by this date. Either you put in the system to measure it [and meet that goal], or you buy the RECs,” explains Dell Jones, vice president of renewable product development for California-based Regenesis Power. 

“If we sign the Kyoto Protocol, it’s going to get murky because there’s going to be two sets of rulebooks,” he adds. 

Florida has not adopted a renewable portfolio standard. Gov. Charlie Crist has pushed for a target of 20 percent renewable energy production by 2020, but add-ons bogged down the bill. “There was too much on the piece of legislation for anyone to be comfortable, so it died,” says Jones. 

Like carbon credits, which can be made by reducing emissions, RECs can be produced by reducing the use of nonrenewable energy. 

But as with greenhouse gases, standards vary—even the definition of what types of energy qualify. In Florida, for example, FPL’s assertion that nuclear power is renewable met with opposition from those who argue that the goal is “clean” and not just “renewable” energy, says Jones, who is heading up the installation of the Regenesis solar plant at Florida Gulf Coast University. 

A company doesn’t have to do much to cash in on REC and carbon markets, says Jones. “They might be doing something in their normal business practices that might be generating carbon credits,” such as switching the company fleet to biodiesel or taking steps to rely more on solar or other renewable energy sources. 

The key to making money on carbon or REC trading is to know what you’ve got. “Be sure you know what an REC [is] and that you’re not giving it away,” he says. For instance, don’t give away your RECs to the company installing your solar panels; that gives it the right to sell them instead of you. Those kinds of clauses are showing up more frequently in contracts, and clients who aren’t familiar with them sign away their RECs. 

LOCAL PLANS AND VISIONS 

Agricultural entities and landowners who already maintain forests, fields or other green space, such as Lykes Bros., have built-in carbon offsets to sell. Those natural systems sequester greenhouse gases. 

But other companies also see potential to produce offsets, including Naples-based Nanotech Industries. 

“Once the carbon-credit market gets going, it will be a huge opportunity for us,” says Francesca Crolley, vice president of operations and marketing. The company produces a nanotech coating that acts as an insulator, not only preventing corrosion and mold but also inhibiting heat transfer, which helps reduce energy consumption. “A lot of textile facilities that use us [have seen] 10 to 20 percent reduction in liquid natural gas use,” says Crolley. Natural gas is a common energy source in textile plants. 

Once regulation is in place so that companies know they’ll either have to purchase credits to meet standards or pay fines, then the carbon-credit market will kick into high gear and provide an additional revenue stream for Industrial Nanotech, she adds. 

The potential opportunities have stirred people to dream up various ways of tapping the carbon market. Russ Ringland, president of Ringland Construction, envisions an urban forestry project in Cape Coral that would not only grow trees in the city, but would also benefit local electrical cooperative LCEC and possibly create carbon offsets. He concedes, however, that the concept still has a lot of unknowns. 

For the past couple of years, Ringland has headed up a volunteer program to plant trees along Veterans Parkway in Cape Coral. The Cape needs trees, and he sees the potential of residents and organizations planting trees citywide, which might create carbon offsets on a large enough scale to sell. 

“You wouldn’t have to have an exchange. You could do it through a direct partnership,” he says. And as an extra benefit, he muses, “If we can get someone like LCEC to give credit for people who plant trees to shade their home, that would decrease LCEC’s peak demand.” 

The carbon market could produce an additional revenue stream for Spear, who plans two companies to produce biodiesel. With Jatropha Plantation LLC and BioFuels Group LLC, he envisions growing crops of the jatropha plant and producing biodiesel from its seed. Jatropha is a hardy shrub that has gained attention for its potential as a nonfood source for biofuel, and it can be grown in soils that aren’t well suited for other crops. Lee County’s agricultural extension service is among those who have been growing it and promoting it as an alternate biodiesel crop. 

“We can be a totally green company,” Spear says. “Every step that we take, we renew. We make electricity off the seeds that we crush. After the seeds are crushed and methane is taken off that, the biomass is used for fertilizer and green coal,” which is formed from the biomass byproduct, he says. “We [wouldn’t] use any electricity from the grid.” 

And in a region with unemployment rates over 12 percent, the companies would employ people to grow and harvest the crops, as well as to man the fuel-production plant, says Spear’s attorney, Brian Dickerson. 

They plan to apply for membership in the Chicago Climate Exchange but are still in the process of accumulating capital—with help from federal energy grants as well as private investors. They’ll be in a position to produce and sell carbon credits once the jatropha crop grows, Spear says, and excess energy that the plant produces will put them in a position to trade RECs as well. 

The primary product, however, will be the biodiesel. It has a market in the trucking industry, and Spear plans to edge into the automotive market as well. 

“The government preaches all the time that we need to be energy-efficient and have security. We’re never going to be energy-independent, but we need to have energy security, which means companies like mine making these fuels,” Spear says. “There are so many things that are good for the environment while making our investors happy.” 

A PRIMER 

A cap-and-trade system is essentially an incentive-based program that many advocate as a way to reduce greenhouse gas (GHG) emissions. Electric utilities, governments, auto manufacturers and other entities that emit GHGs comply with those caps not only by taking steps to reduce their emissions, but also by buying credits to offset what they continue to emit. In a simple form, offsets come from forests, crops and other carbon dioxide absorbers. For instance, a power plant that produces greenhouse gases could buy credits from a landowner who grows timber. The emissions and offsets would be measured by certified standards, and the trade would take place through a commodities-type market. 

GHG emitters could also gain credits by reducing their carbon footprint. For example, switching a company fleet from Hummers to Priuses and quantifying the reduction could gain the company a certain number of credits that could be sold. 

Partly as a result of the Kyoto Protocol, the international agreement to reduce greenhouse gases, such systems are already in place in many parts of the world. Because the United States did not sign the accord, it lacks the mandates that other nations have to drive a carbon-credit market. 

However, some initiatives have taken shape in the United States. The Chicago Climate Exchange is a voluntary but legally binding commodity market dealing in greenhouse gases. Members commit to reduce their emissions by certain amounts, and if the reduction is greater than their goal, they can bank or sell the surplus. The exchange also accepts members “in the agricultural, forestry, waste management and renewable energy sectors” that produce certified offsets to greenhouse gases. Members range from TECO Energy Inc. to Ford Motor Co. to Bank of America Corp. to Miami-Dade County. 

In some regions, governments have collaborated to create mandatory cap-and-trade initiatives, such as the Regional Greenhouse Gas Initiative, through which 10 Northeast states have joined forces, and the Western Climate Initiative, which encompasses about a dozen U.S. and Canadian governments. 

Furthermore, 29 states and the District of Columbia have adopted “renewable portfolio standards,” which set goals designed to increase the use of renewable energy sources, such as solar and wind, to reduce the use of fossil fuels. 

Each initiative has its own standards for measurement and criteria, however. 

What would really kick-start the market would be the U.S. government’s adoption of a cap-and-trade system, standardizing the U.S. market and making greenhouse gas reduction mandatory. Many believe the Obama administration plans to do just that. In March, the U.S. Environmental Protection Agency issued a rule requiring polluting industries to report their emissions. 

“I think it’s a big first step toward preparing for the regulatory market,” says John Wakefield, manager of corporate development for Lykes Bros. Inc. and senior vice president of a business unit the corporation launched in January, called Eco2Asset Solutions LLC. 

In addition, the United Nations Climate Change Conference will convene in December in Copenhagen, where the focus will be on an international response to climate change, and Wakefield is among those who see that as a turning point for the United States to revisit its position on the Kyoto Protocol, which expires in 2012. 

“I think the Kyoto Protocol will be readdressed and rewritten in early 2010,” he says. “I think the world is looking to this new administration to take some form of leadership at that event. I think they’re preparing and making political posturing so that Obama can demonstrate to the other nations that are part of that protocol that he is taking some kind of leadership role in our country.”