The voluntary carbon market in the United States has been functioning efficiently for several years with little involvement from biofuels producers. Time might be of the essence, however, for companies that are tossing around the idea of entering the market. All signs point to a future that includes federally mandated emissions regulations. Early market entry could result in several benefits, including a chance to help shape future mandates and benefits. Generally speaking, corn ethanol facilities are tremendous energy consumers and are currently unable to generate carbon credits without modifying their operations. For producers looking to become more energy efficient, the carbon market offers the perfect reason to install the equipment and/or technology necessary to reduce energy input. It could save producers money in operating costs, help change the industry’s “high energy input” image and give them the opportunity to become leaders in the carbon market.

About Carbon Credits
Carbon markets are commodity-based markets that exist for the buying and selling of carbon credits. The term “carbon credit” can be misleading because it’s not just carbon dioxide that’s traded, but rather all pollutants that increase greenhouse gas (GHG) emissions. Included in that category are carbon dioxide, methane, nitrous oxide and a list of fluorinated gases.

GHGs are assigned a number representing their global warming potential (GWP). According to the U.S. EPA, GWP can be defined as “the ratio of heat trapped by one unit mass of the greenhouse gas to that of one unit mass of carbon dioxide over a specified time period.” Therefore emissions are traded on a carbon dioxide equivalent, which leads to the general term “carbon credit.” For example, carbon dioxide has been determined to have a GWP of 1 while methane’s GWP is 21. Therefore one ton of methane emissions reduced equals 21 carbon credits. Nitrous oxide, a major component of corn production, has a GWP of 310.

Several emissions trading schemes have been developed to reduce the effects of global warming. Variations include regulatory systems, similar to what is being used in Europe, and voluntary systems, currently at play in the United States.

The European Union’s emissions trading scheme is the largest carbon market in the world. It’s a cap-and-trade-system where industrial companies are required to limit GHG emissions to certain levels every year or buy credits from other lesser emitters to make up the difference. The EU’s system may be the largest but it’s not the oldest. Although it’s been in operation since 2005, the U.K. had an emissions trading scheme in place prior to that. The European Union scheme follows the framework for GHG reductions set forth in the Kyoto Protocol.

In the meantime, other countries have recently announced plans to develop mandatory emissions reduction standards including Japan, Australia and New Zealand. The province of Alberta, Canada, has implemented a regulatory system and because of the oil drilling that is occurring in the tar sands in that province, carbon credits are in high demand.
In contrast, the United States’ carbon market is a voluntary system where a multitude of private trades are conducted for a variety of corporate and personal objectives.

Trading on the U.S. Carbon Market
There are only a couple of programs in the United States designed to entice businesses to reduce their carbon emissions. Carbon offset programs include the California Climate Action Registry and the Regional Greenhouse Gas Initiative. CCAR is a nonprofit GHG registry established by California as a way to promote early actions taken by members to reduce emissions. Members agree to measure, verify and report GHG emissions and in exchange the state will ensure those members receive adequate consideration for being early actors in the event of future state or federal regulations. As with many other California-based environmental programs, it serves as a leader among rule makers. Protocols set forth by CCAR are often noted by other carbon offset organizations in the country.

The RGGI is a conjunctive effort among 10 Northeastern states—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont—to mandate a cap on current emissions, and it calls for a 10 percent reduction in emissions by 2018. It is the first mandatory, market-based carbon dioxide emissions reduction program in the United States, however it was created only to regulate power plants and so does not yet hold relevancy to ethanol producers. Participating states created a model to serve as the basis for each state’s individual regulations.

And then there is the voluntary trading market, which is led by the Chicago Climate Exchange (CCX). Established by Richard Sandor in 2003, the CCX is the world’s first and North America’s only voluntary, legally binding integrated trading system to reduce GHG emissions. It was formed to provide structure, transparency and rules to the carbon market.

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