What's the deal with carbon trading?

What's your witty set up here? I don't have a wity setup. It's more of a depressing setup. All right, it's here. Um. Obama finally conceded that the energy bill that Congress is going to pass under his first year or so of the administration is not going to have a cap and trade segment to it. No. No, it was going to the House passed at some thing with it. Uh. The Senate's like, no, we're not going to. We just

don't want to. We're not going to. It's not that there's anything wrong with it, but we're the Senate, so nothing's ever going to escape. This is like the black hole of legislation. Nothing can escape it, you know. Um, So cap and trade is dead and that's um really sad, as we'll see, because it can be beneficial, at least in theory. Um. And as a result, all of these voluntary initiatives, because it was going to be a mandatory cap and trade um set up for the United States,

a bunch of voluntary stuff. Specifically out West, there was a regional cap and trade scheme that was going on or about to go on, and the whole thing was proposed and underwritten by Arizona because its greatest champion. And now that the Senate is like, no, we're not passing this, Arizona is like, by the way, we don't really want to do this voluntary falling apart. Um, there's a bunch of them falling apart. It looks like the only one that's knew that hasn't been set up yet it's still

going forward as California. Well, of course, yeah, wow, that's disappointing. It is. And do you think we should let everybody in on what cap and trade scheme means? Yes, Josh, we're talking about carbon and it's basically a way to regulate carbon emissions through a market based much like you know any market basing like the stock market, except it's limiting carbon emissions. So what you do is you set

a cap. That's the cap part, which is the limit of emissions you're allowed to admit as as a factory, let's say. And then the trade part comes in because you can if you don't use all of your emissions credits, let's say, you can bank them or you can trade them and sell them with your with your factory buddies. Right, there's a good way to say. That's exactly. It's perfect. As a matter of fact, Thank you, Chuck, Brian, everybody. So, um, there's a regional UM cap and trade scheme up in

the Northeast that's been fairly successful so far. No huh, the northeastern states, like in New England, among I think electrical utilities, and it's voluntary UM and basically what so you have a body that's governing this and then they say, like they said, a cap, like you said, and let's

just pull the number out of there. They can. All of the people who are members of this, all the electrical companies there are members of this combined are allowed to admit a hundred million metric tons of carbon dioxide next to you, and you're just making up that number, right, pulling it out of there. And then you you create these credits, right um, that are slices of that trenches. So let's say each trench is UM one. That means

there's one million credits out there available for everybody. And let's say they're distributed evenly, maybe at first, but then Factory A puts out and there's ten factories, so each one can put out ten million metric tons of c O two next year. Okay uh. And then Factory A says, okay, we're accidentally putting out eleven million. Factory B, we noticed that you're on track to put out eight million. That means you have two extra credits. Can we buy one

of those from you? Boom done? So these things now have a value money value, right uh. And there is a penalty for going over, which should be more than the credit is right right, otherwise there would be no incentive right to stay under right, Yes, very well said so, yes, So that is a cap and trade scheme and they are in existence, right, and scheme just sounds negative because scheme just sound they should change. The name has a negative connotation. It definitely does, and I can't help help it.

Think that there are people out there like, oh, I don't want to cap and trade scheme. I don't really know about it. So that's just the word for it. Though it's not bad. There's actually a scheme in Europe that's fairly vital, heavily criticized, but still also it's the

first mandatory one, I think in the world. Then it was born out of the Kyoto Treaty, right, Yes, the e t S, the European Trading Scheme is uh, like you said, born out of the Kyoto Protocol, which does not tell people, uh, tell participating countries how to participate.

They just have to meet the standards. So Europe, the EU came up with the the e t S and it includes twelve thousand factories and utilities in twenty five different countries and each member state, I thought this odd sets his own emissions cap based on the Kyoto Protocol, which we are not a member of. No, we're not. I'm like, it's the Kyoto Protocol. This is the first

time I've heard of this thing. That's not true? You okay, yeah, but well although we helped draw it up right Clinton the Clinton administration and did yes, and then it was scuttled when it came before it came into effect in two thousand five by the Bush administration, right because of fears that it would aid that it wasn't properly put together to begin with, and be that um financial the

financial impact might harm America's economy well. Plus also it was divided divided countries by Annex one and Annex two and next one being industrialized nations and Annex two being um developing economies. The problem is is two of the world's biggest developing economies, India and China, are also two of the world's biggest polluters as far as CEO two

emissions goes. And that was one of the problems that the United States had with the Kyoto Treaties, that it didn't put heavy enough sanctions on developing countries because they they're not required to meet the same standards. And that makes sense. It does make sense um and there's a certain amount of Hey, we already screwed up the world, but we learned from it. So now you can't build

your economy by screwing up the world. Because we've already learned the lesson the hard way, even though we wouldn't be in this mess if we hadn't already screwed up the world. But you can't do the same thing we did. So there's a certain amount of that, But at the same time, there's also a certain amount of Okay, we need to remain competitive in the global marketplace. And one of the things, well, the whole point of carbon tax is to make it harder to emit or to make

economic sanctions on emissions. So that means that there's an extra cost that American companies have to bear that companies in operating in China or India don't have to write. That's not a carbon tax, though that's different than carbon trading, right, it's no carbon taxes just straight up, you put X number of emissions out, you pay X number of dollars on those emissions. So there's an incentive to reduce your emissions because you're paying a lower tax. But both of

them are de facto taxes on pollution. So we were talking about the e t S, sorry, the European trading. Yeah, yeah, this is that you're saying that it was controversial and

one of the reasons. It's controversial because they, um, you can the government can allocate kind of it will It seems like so preferred industries maybe might get some free credits if they're inching up towards their limit, their cap limit, And basically they call it a permit to pollut and it exempts those industries as favorite industries are the ones that have the best lobbyists. So that's no good. No, Like everything, it gets tainted, right. And it's also, um,

there is a market over there. You can buy carbon credits from the e t S just as a speculator. Um. But it's mandatory, which takes a certain amount of market um fluctuations or market base out of the whole thing, the whole equation, right, the mandatory participation. Yeah, right, right, So if you have a voluntary participation trading scheme cap and trade scheme, UM, you would think that, based on Adam Smith's theories, this thing would be flawless. Right. Where

would you find such a thing in the United States? Yes, you would, Yes, since we're not a member of the Kyoto Protocol, almost called it the Pyoto Protocol. I think that's what you should call it. Um. That is uh, that's what we have here now, so we have We didn't participate officially, but I think a hundred and thirty mayors across the country implemented their own programs in their city that met the similar standards as the Kyoto, which

is as heartwarming as moose playing in a sprinkler. Yesedently. Yeah, So that's good though, because we're we're getting with the program anyway. And you you wrote about the Chicago Climate Exchange, is that right? Yeah, so tell me about that one. So there's a guy named Dr Richard Sandor and uh, I believe he's an economist. He's out of Chicago. I

know that munch um. And in two thousand and five he founded something called the Chicago Carbon Climate Exchange, the c X r UM, and it functions exactly like a stock market does. Actually that's not true. It functions more like a commodities market does, so like pork belly futures or oil or gold or something. But what they trade on the Chicago Climate Exchange are carbon credits. Yes, but it's still legally it's voluntary, but it's still legally binding.

Right when you sign up as a company on cc X. What you're saying is I agree to reduce my carbon emissions by x amount um, and if I don't, there's an actually huge penalty for it. It's five grand per metric ton. Yeah. Yeah, it does real quick, and it is legally binding. So the cc X can levy these really stiff penalties for people who don't meet their quotas. Now on the c c X what they trade our carbon credits, So on any given day they're like maybe three four bucks. I don't know what they're up to

these days. I know the ones in Europe, since it's mandatory, they're usually about ten times higher ten times higher in value than the ones in Chicago. Um, but let's say four bucks for a hundred metric tons of c O two emissions. Right. So, just like what we were talking about before, a company who is going to emit more can buy these credits so that they don't have to pay these stiff fines, but they have to buy credits safe from somebody who another company who is coming in under.

So the other companies provided a financial incentive for lowering their emissions in the form of these credits, right Uh, And then the company who's going over is being penalized in the form of these credits, right. You can also earn more credits, not necessarily just by buying some from somebody else, but by UM funding projects that actually reduce carbon right yes, as long as they're verified. Yes, And you can actually do that in the e t s

as well. You can earn credits through to UM Kyoto mechanisms, the clean Development mechanism that allows you to help out poor Annex two countries that can't afford their own to reduce their own carbon output. And then joint implementation is when you can partner with other Annex one countries, which I guess that's a good thing too. Well. Yeah, either way, as long as you're reducing c O two. That's one of the one of the very UM distinct aspects of reducing greenhouse gases and c O two is that no

matter where you do it, you're affecting everything. Yeah, So planning trees and like say Sudan or something well ultimately have an effect for the rest of the planet. Right. Yeah. A lot of companies offer that now, UM it's part of like a Now certain airlines and UM airline websites will offer like an extra if you want to pay an extra ten dollars on your ticket, they'll plant ten trees for you in some other country. Right, So that's kind of nice in a way. It is nice. So

you're ready to talk about that. Yeah, First, let me let me correct myself. The cc X was founded in two thousand three, not two thousand five. Yeah, and you know, let me go ahead throw out a stat since we're still on c c X. They traded about four years ago a total of ten point two million tons of c O two and then and Chuck also, the the value UM went from like next to nothing a couple of years ago to I think as much as a

hundred million dollars carbon offsets. The carbon market itself, I think generated about thirty billion dollars in two thousand seven. And what we're talking about is something that doesn't exist. It's a reduction. They represent a reduction in CEO two. It's sort of hard to wrap your head around it. It It definitely is um and it actually it can work. Yes, right, Um, there's a model that's very similar. Do you remember, Chuck, when we were younger, acid rain, whatever happened acid rain?

I know the fears of school children everywhere to go outside and our skin would like melt in the rain. It was the Communists, AIDS, and acid rain. Yeah, the big three. We have a really rough childhood, didn't we. Yeah? Um, But acid rain you never hear about anymore. And the reason why is because the US government actually instituted a mandatory cap and trade scheme on UH methane emissions. Isn't that what it was that caused acid rain? Uh? Sulfur dioxide?

That's right, so close. So the acid rain program, Josh, yes, limits sulfur dioxide that powers plants here in the States, and it has worked to the tune of emissions have dropped below what they were in nineteen Not bad, No, not at all. And they did it slightly differently. They put a um, they put a cap on, they divided it amongst um emitters of sulfur dioxide. To think, are again electrical plants or power plants are the worst emitters

for it UM? And they said, here, your allowances don't go over and if you do, you're in big trouble. And they each year they revised the cap lower, lower, or maybe every couple of years. And that's the whole point. I don't think we talked about that. The point of a cap and trade scheme is that you don't just put the cap somewhere and leave it there. Yeah, it

should go down. It should eventually go down with a moderate pace, because you don't want to go too far down or else the economy is going to be crippled. You don't want to be too high up or else there's not gonna be any point to it. But you do want to raise it systematically, which is actually lowering lowering it systematically over time. So, Chuck, have you noticed that the carbon credits were talking about sound an awful

lot like something else called carbon offsets. I said that you and I can go on to the Chicago Climate Exchange and buy carbon, right, a hundred metric tons of carbon if we want, for like four bucks I think a pop? Okay Um. You can also find a broker and say I want to buy a carbon offset, and what do you give for that? Chuck, Well, these are pretty popular now what you get when you buy a carbon offset. Let's say al Gore made the headlines a few years ago, Mr Green al Gore, who I love

and you do as well? Uh? Was he was under fire because of the amount of energy his large house in Tennessee consumed, which was a lot. Yeah. Right after Inconvenient Truth came out, Drudge Report broke like his bill or something like. Right, so they kind of held a speed to the fire and he said, no, I've purchased Wait, that was my Clinton. Good enough, he purchases car. Can you do a gore? Because it's so I do want to hear I purchase carbon offsets. That was actually really good, Chuck.

So carbon offsets. Let's say you could go through a company like Terra Pass, who will talk about in a little more detail, and uh, he would buy basically um, he would invest in renewable energy in other parts of the world. So let's say if he's using uh, you know, a hundred credits over what he should be using, He'll buy a hundred credits worth of of renewable wind energy in um in Africa, because like make up for what

he's using. If you alleviate CEO two emissions anywhere in the world, that has just as good of an effect at home. Sure, So making him carbon neutral, I believe is that is the word they like to use, right, right, So, like if he calculates that his electricity that he uses annually at his house equals fifty metric tons of CEO two emissions. He will purchase that. He can go buy that, right. So what you do is you go to a broker who sells carbon offsets and cut and they sell them, right.

They sell them for let's say nine bucks a metric ton, right, Okay, and I think that's about right. Actually. Um, So you say, okay, well that's great because I only need two hundred of these for the year. Yeah, you gotta have some coin in your pocket, a little extra spending money, sure, but for bucks you can offset all of the CEO two emissions that your family puts out for a year. It sounds great, It does sound great, and you know what

it can be. We're not poop doing it. But there is another side to the coin, Josh, there definitely is. Um anything that sounds too good to be true, or lets you sit back with your hand down the front of your pants, drinking a beer and still somehow alleviating global warming, you should be suspicious of, yes, and a lot of people are because a lot of times what's happening as is, and this is the way I read this article was that it's not necessarily creating new initiatives.

A lot of these initiatives where the money is going either we're already in place or we're going to be in place anyway. So these these firms are making a little extra cash, which they seem to appreciate. But the firms who are undertaking these CEO two emission reduction programs, right, they have said, and there's some quotes in the article, they said, you know, I made sixteen grand last year, and we're glad to get it, but we would have

been doing this anyway. Right. That was a farmer who actually created or invested in um very high tech machinery that used methane emissions from his cows manure to generate electricity for his farm so he could save money. Well, he's actually paid money through the through investment in this. The problem is that this guy was going to do

it anyway. It is good that he's being rewarded for it, but why aren't we seeking out projects that won't get off the ground unless there's investment, because then it means this farmer was going to do it anyway. And there's another project that wasn't gonna happen unless it got this investment. And it doesn't seem like there's a lot of active seeking out of investments. These brokers struck me as somewhat

lazy and find stuff that's already there. Yes. And the other little hinky thing is that there's not a lot of transparency going on here. When you, um, when I think it was this Business Week, Yeah, business Week got in touch with some of these firms, and no one will say the broker won't say how much of a cut they're getting, They won't necessarily say who they're getting in touch with. Two uh, to help alleviate the carbon reduction,

to help manage the carbon reduction. So there's there's not very much transparency and that has set off a lot of alarm bells with a lot of nonprofits. Yeah, and it should um. There there's also the farmer Darryl Vader. Is this name? Um? Is it really Vader? D Vader Vander? Oh, it's too good to be true. Um, just like a carbon Darryl Vander who has his um poop powered electricity farm. Uh. He said that the right, Thank you for that, because

I was about to start stammering. Um. The investment that he's getting is two dollars out of the nine dollars per less than two per ton. Yeah, Um, that that's what he's getting from this firm. So you have terror Pass, right, which is a broker, and then he was set up with terror Pass through a middleman. So from the nine dollars that a person is putting in too Terror Pass for that one ton of carbon dioxide, only two dollars of it is going to the actual program. And we're

not poop pooing Terra Pass here. I mean, there's a San Francisco company that I believe a teacher at Wharton started and and he bikes to work, so he's he proposed to his students to come up with an idea and they did and it's working. Uh, they're they've got I think, what close to fifty customers, So I think they're trying to do the right thing. But it would be awesome if there were some new initiatives and not necessarily, Hey, we'll give this farmer some dough for this thing he

was already doing to begin with. Right, But I mean, you can make the point that they are rewarding this guy for going above and beyond. Word gets out and YadA YadA YadA. Right. Um, there's a did you know that veils ski resort? Yeah, let's talk about that. Which what's the company called, uh, it is called Veil Resorts. Appropriately enough, they are a hundred percent wind power right. Did you know that not one bit of their electricity

comes from wind. Yeah, so they're able to claim that they're power by wind when in fact they have spent a lot less money buying renewable energy certificates representing the amount of wind generated that uh that they would require to generate all their power. Right, So what the and and their pr flak is a pretty wrecked and saying we're in the resort business. We're not in the power generation business. But the resorts actually did look into powering

themselves their entire resort with wind power. But they're like, whoa, that's a lot of money when we can buy these offsets. Right. But there's a guy who actually, um does wind power electrical generation. It's called FPL Energy, And he's quoted as saying, um that voluntary renewable energy certificates like the ones that the Veil Resorts company bought our pure corporate marketing and image management, and that's it. And this guy is actually the one who's on like the receiving end, and he's

like this isn't this is this is not right. It's not it doesn't work. So when the boots on the ground are telling you that everything is all screwed up, that usually means something's really screwed up. And that again, when you're sitting back just writing a money out of your checkbook instead of actually doing something in your own backyard, it's probably not having the same effect, even though on paper it looks like it, right, Can I sell you

another quote? This is from on or Angel Colmus. She's an outreach coordinator at Toughs Climate Initiative and it's an advocacy group for for the environment, and she kind of sums it up. Nature does not fall for accounting schemes, So that kind of says it all. It's it allows Hollywood hot shots to feel good about their life by

purchasing offsetting their you know, massive energy consuming lifestyles. And it allows companies like Veil Resorts to say, you know, we're powered all by wind when they're really not actually powered by wind. So you know, I'm at odds because I'm a green guy, and it's good that people are doing things like this and not anything at all. But at the same time, new initiatives. Well plus um, that's there's also a big debate about exactly who the owners

should be on for reducing emissions in emitters. Right, So, Delta Airlines had a little program I don't know if they still do where for five dollars and fifty cents for domestic flights or eleven dollars for international flights, you could contribute extra. You pay extra in your ticket and Delta would planetree. The question is, is Delta is the one that's actually polluting. Yes, you are, you're contributing, but you're paying hundreds and hundreds of dollars for your ticket.

Why isn't Deltas putting out any of their money to reduce their emissions or to find ways to reduce emissions, or to fund projects that actually reduce emissions? Like it keeps this the whole carbon offset thing that these companies are actually using for their own public image, are actually being paid for by the company's customers, right, itta bit of a shell game. Although I did discover one place, at least one place that you can buy a carbon offset and it actually has an effect. I talked to

a guy once, Michael Short. Yeah, I got him right here in my jacket UM, a guy named Michael Short with a clean or campaign. They actually you can go on to their website calculate what your car puts out or you know how much you use in electricity as far as CEO two emissions um and they'll give you like X number of tons do you want to buy

an offset? And what they do actually is they take your money to go buy carbon credits from like the Chicago Climate Exchange, and they sit on them, they retire them, they take them off the market, which drives the price on the ones that are in the market because laws applying demand scarcer something is, the more expensive it is. So they're actually in the game like buying these these carbon credits and taking them away from the actual emitters so that they do it will eventually become more cost

effective for these people to take carbon reduction measures. And you know what, it's all paper, So yeah, it's Vaporit's what's so hard to understand about it, But not really once you wrap your head around it. And I'm not even an environmental guy. Just love that. Yeah, you are you kidding me? No, not real, folks. Josh headed up the recycling program here at work before he officially had one and took the cans himself every week and allowed

the canned thing collector to be at his desk. And you didn't pick any credit for that, so it's a little late for that. Thank you, everybody. You left out the part where I took the cans to a homeless guy so he could take them in for money. Oh man, that would have been like the ultimate cherry on top that you really did that. Yeah, look at you. I think I need to alleviate that the shame of being so vain by buying some carbon offsets from the clean

air campaign. They should have like karma offsets just for being like a bad person. You know, you could just buy karma offsets. I could use some of those. We should start selling them. Yeah, we should heavily invest ourselves

look for those in the future from chucking Josh. Until then, if you want to learn more about carbon trading, type those two words into the handy search bar how stuff works dot com And uh, it's now time for listener mail, So everybody grab your carpet square laid down, Josh, how about a Keeva update first? Oh, that's an even better idea, and you want to just break it down real quick.

For those who don't know, Keeva dot org is a micro lending site where you can contribute to investors or entrepreneurs, I should say, in developing countries and in the US. UM And we have our own team, which you can find at www. Dot kiva dot org slash team slash stuff you should know, right, And we have a hell of a team, Chuck, we do, dude. We had a goal of a hundred thousand dollars loan and uh we are currently over eight thousand dollars loan through only uh

close to eight hundred members on our team. That's fantastic, which is awesome. But I do know that that is a fraction of our audience. Oh yeah, So I put the call out to you folks who have said, oh man, to keep mening to do Kiva. Just go to Kiva and sign up. It's really fast and it's fun to loan and um increments increments. My loans are recycling now actually, so they're going to be due up to read loan soon, which is pretty cool. That's awesome. Yeah, way to go, check,

Way to go, Josh. That's up to you, right all right, So now, listener, mail, it's time now for listening mail. Yes, Josh, I'm gonna call this. Uh my family were witch burners, just from Gwen in southern California. I'm so glad you guys did the podcast on witchcraft. I've been interested in witchcraft since i was a kid. In fact, it started while researching my family history. I discovered a long line of involvement with the craft. Our family is directly descended

from increase In Cotton Mather. And by the way, if I ever have a son, I'm gonna name him Increase Increase Bryant. Yeah, it's a great name. Or Goody Goody Bryant. Um, that's a girl's name. Oh, Goody's short for good wife. Okay, so I've had twins, I can name them Increase and Goody if they were Um. They were both Puritan ministers living in Boston in the seventeenth century. Cotton, who was the son of Increase Or, wrote a great deal on

the subject of witchcraft. Uh spectral Activity. In Spectral Activity even directly accused a number of individuals to be witches. He was said to believe to be nearing He believed we were nearing the last judgment and felt that he himself led the way against the devil's legions, so we all feel that way. Yeah, he was clearly wrong. Uh. He was personal friends with a few of the judges that presided over the Salem witch trials and urged them

to use confession as the greatest evidence. And I'm sure the confession was probably wrung out beating he had beating out of him. He and his father attended one of the final executions at Salem, but Cotton never recanted his position on witchcraft or his involvement with the trials, although his father became more and more vocal with his doubts of spectral activity. Well slightly because his own wife was threatened and called the witch. This is her family, dude,

uht is that sinking in? It is? Cotton is pretty famous and somewhat of a legend in the history of witchcraft. When I was younger, I got to visit Salem and they did re enactments of the trials. Some was cheesy, some of it really cool. I later got got to visit the grave of Cotton Matters at Cobb Hill, where we spoke with and learned as ton from the grave keeper. Strangely enough, on the other side of my mom's family.

The Alexander side, we had a female ancestor burned at the steak, so she's really got it coming from both directions here. Unfortunately we couldn't find out more about this because the documents are locked up in Ireland. Hopefully someday I can pick up this investigation. They got more history. This all led me to study Wicca a lot when I was younger, and you guys did a great job

laying it out. So that is Gwen. Um, Well, we already said the last name Mathers, and she said, well, she said they picked up an s in the last hundred years. Weird. No, yeah, because it used to be mother or mather. That means that the kid who played Beaver and Leave It to Beaver is related. Then yeah, Jerry Mathers, maybe he was a witch hunter. Excellent, So firsthand account from Gwen in southern California. Thank you, Gwinn,

appreciate that um revelation about your family tree. Uh. If you have a story about how the Irish are keeping a strangle hold over information you wish to seek, put in an email and send it to Stuff Podcast at how Stuff works dot com for more on this and thousands of other topics is that how stuff works dot Com. Want more house stuff Works, check out our blogs on the house stuff works dot Com home page. Brought to you by the reinvented two thousand twelve camera. It's ready, are you