Patchwork U.S. greenhouse gas market grows slowly

Wed Nov 23, 2005 4:48 PM ET

NEW YORK, Nov 23 (Reuters) - Dairy farmer Dennis Haubenschild of Minnesota received a nearly $10,000 check for burning methane from decaying cow manure, keeping a gas scientists consider a cause of global warming out of the atmosphere.

Tom Arnold at a group called Terrapass in California buys carbon dioxide credits from alternative energy producers for consumers who are trying to compensate for the carbon dioxide levels their big cars emit.

Entergy Corp. buys carbon dioxide credits from farmers who sequester carbon by burying crop residue back into the soil.

Growing numbers of people and companies in the United States are finding creative ways to make money by buying and selling the gases that most scientists believe are warming the earth.

But the U.S. market remains small, with only a few million dollars trading every year. In Europe, where most countries have place limits on greenhouse gases, millions of dollars of trade occurs almost every day.

The United States needs mandatory caps on greenhouse emissions for the market to grow, emissions market players said.

The potential of the U.S. market could be billions of dollars, but without knowing what levels of cuts could be made into law, few players are entering the market.

"Nobody knows how big the U.S. market is," said Rich Rosenzweig, Managing Director of Natsource, a U.S. broker that mainly operates in Europe and Asia.

In 2001, President George W. Bush withdrew from the Kyoto Protocol requiring developed countries to cut emissions. And although states in the U.S. Northeast and in the West are trying to form laws to make their own cuts, the market is only growing slowly without mandatory cuts.

At the U.N. meeting in Montreal on the Kyoto Protocol next week, about 190 nations will meet to try to enlist the United States and developing nations such as China and India in the U.N.-led fight against global warming.

The United States is expected to fight for voluntary greenhouse gas cuts instead of mandatory cuts and and to tout the burying of carbon dioxide emissions in underground caverns.

"Carbon sequestration is really important, but it is a much much more longer-term technology," said Rosenzweig.

To prepare for possible mandatory U.S. cuts, big oil and gas companies are conducting over-the-counter greenhouse gas trades. But the deals can be risky as the clean energy projects they are getting the supply from may not be verified.

"If everything is over-the-counter and you don't have a law underpinning it...you have to be very careful as a buyer," said a market source, who did not want to be identified.

Over-the-counter carbon deals are secretive, as companies do not want to reveal how they are preparing.

Potential U.S. carbon caps could have a safety valve for when the price gets too high, such as the one being developed for the market in Canada. The alternative would be to operate without a safety valve, such as in Europe. Either way, greenhouse gas markets should grow once caps are mandated, market players said.