Dreaming Up Whole New Carbon Markets

June 12, 2012

By DIANE CARDWELL
New York Times ‘Green’ – A Blog About Energy and the Environment

Normally, when supporters of renewable energy talk about carbon markets, they’re referring to a system of traded credits that industries buy to compensate for their emissions of greenhouse gases, like the ones already sold in Europe and under development in California and Canada. But at the Renewable Energy Finance Forum-Wall Street, an annual conference organized by the American Council on Renewable Energy, the talk on Wednesday was of developing a different kind of carbon market where the gas would be bought and sold like a commodity to encourage carbon capture.

Although carbon capture projects have stumbled lately, oil companies buy carbon dioxide, usually in individual transactions, for a process known as enhanced oil recovery, in which carbon dioxide is pumped into the ground to force extra oil out of the fields. But naturally occurring carbon is in decline, and there is more demand than can be met, said Ann E. Banks, chief commercial officer of the Summit Power Group, which is developing a project that will pipe carbon dioxide captured from gasified coal to help extract oil in West Texas.

The Department of Energy is therefore looking into the potential for developing the other carbon market. In the conference’s keynote address, Richard Kauffman, a senior adviser to Steven Chu, the secretary of energy, said that such a market could play an important role in increasing domestic oil production and lowering emissions. There are other uses, too, like feeding algae, which can produce biofuel; stimulating plant growth in greenhouses; and turning it into a coolant for air conditioners.

“Imagine a market developing – a commercial market — for CO2,” he said, adding, “We might find that there are a lot of uses for it.”

Mr. Kauffman, a former investment banker and private equity investor who joined the Energy Department last September, did not offer details on what such a market might look like, and he emphasized that it was only one of several ideas under discussion to encourage the spread of alternative energy. Other potential steps to lower the cost of financing renewable energy projects include allowing the use of master limited partnerships and real estate investment trusts for clean-tech ventures, developing new financing structures with the Department of Defense, and creating business models for utilities that allow them to thrive even though they are selling less electricity as more residential and commercial customers begin generating their own power.

“Let’s keep thinking about ways to harness market forces to achieve both policy and investment goals,” he said.