Mikkel Vestgaard Frandsen

The Skype connection to Kenya crackles. Mikkel Vestergaard Frandsen, the 38-year-old CEO of a Swiss company that bears his family name, tried to make himself heard. His excitement is palpable.

“Watching this unfold is crazy,” he tells me. “There are so many things we’re trying out here, things we’ve never done before, things that no one has ever done before.”

Vestargaard Frandsen is a Swiss for-profit company that’s in business to save lives in the global south. Its products include LifeStraw, a water filter and PermaNet, a long-lasting bednet to protect people from malaria.

Ordinarily, it sells these products to aid organizations and governments. Then they’re given to people in need. This time, Vestergaard is trying something different: It’s directly giving away about 1 million LifeStraws, at a cost of nearly $30 million, mobilizing thousands of local people to do so, tracking results carefully and expecting to be paid back in the form of carbon credits. Mikkel’s right–this has never been done before.

How this came to pass is interesting. Founded in 1957, family-owned Vestergaard Frandsen originally produced material for work clothes. About 20 years ago, it started a line of relief products like blankets and tents. By 1997, when Mikkel became CEO, the company had phased out conventional textiles to concentrate on relief aid products.

“We’re fortunate to be able to build a business around the opportunity to save lives,” he says.

Mikkel got especially excited about a simple water filter that the company developed as part of an effort led by the Carter Center to fight guinea worm, a waterborne infection that afflicted millions of people in 20 countries in Asia and Africa.

“It’s a pretty nasty thing,” Mikkel told me. “The worm gets into your body, and it grows to about a meter long, and then it has to get out of your body somehow.” We’ll spare you the sickening details.

Today, thanks in part to the filters his company produced, the disease has been confined to four countries and is on the verge of disappearing. “It will be the first disease eradicated without a vaccine,” Frandsen said.

Lifestraw Family

From there, the company went on to develop portable LifeStraw filter and then LifeStraw Family, a complimentary water purifier designed for use by families at home that cleans waters to EPA standards and lasts long enough to filter 18,000 liters. LifeStraw Family is typically sold wholesale for about $25.50.

Back in September, 2008–on September 15, to be precise–Vestergaard Frandsen launched a campaign to give away a product called CarePack in western Kenya. About 50,000 people who came in for HIV testing were rewarded with CarePacks which including “60 male condoms, an insecticide-treated bednet, a household water filter for women or an individual filter for men, and for those testing positive, a 3-month supply of cotrimoxazole and referral for follow-up care and treatment.” I mentioned the start date of September 15 because of something else that happened that day: Lehman Brothers went bankrupt, setting off the global recession. Mikkel realized afterwards that raising funds from donors and governments for his company’s products was about to get a lot harder.

That’s when the company turned to carbon markets, in this case the voluntary markets. In these markets, companies or individuals buy credits to offset their CO2 emissions.

LifeStraw qualifies for carbon credits, it turns out, because when people in poor rural areas like western Kenya have a way to purify their water, they no longer have to gather and burn firewood to boil it. The program was approved for voluntary carbon credits under the Gold Standard certification scheme. J. P. Morgan Chase is among the first buyers of credits, and will sell them to its clients.

To qualify for credits, though, the use of the water filters has to be documented and carefully monitored. So Vestergaard Frandsen has hired and trained 4,000 community health workers and another 4,000 drivers to give the filters away over the next five weeks. Each is equipped with a smart phone to provide GPS coordinates and photos of each family using a LifeStraw. And the company will hire hundreds more people to make sure the filters keep working–because its revenues depend on proving that it is offsetting carbon.

Can you see why Mikkel is excited? The Carbon-for-Water program gets clean water to hundreds of thousands of people and protects their lungs from the indoor air pollution created when they burn wood. It creates jobs (albeit temporary) and income in a poor country. It brings carbon finance to Africa, which so far has received less than 5 percent of all carbon finance revenues. It’s transparent and accountable, unlike many aid efforts.

And if all goes well, it can get a lot bigger–because Vestergaard Frandsen expects to profit.

“The carbon-for-water campaign could be a game-changer if we can take this to scale,” Mikkel said. We’ll see.

It’s hard not to be impressed by the people working for the Obama administration on the environment. For the most part, they’re smart, well-intentioned, dedicated. Let’s hope they can deliver meaningful results soon on the issue that matters most: climate change.

Today, I’m at the Society of Environmental Journalists convention in Madison, Wisconsin. It has attracted a parade of administration officials: Tom Vilsack, the agriculture secretary, marine biologist Jane Lubchenko, who leads the National Oceanic and Atmospheric Administration; Nancy Sutley, head of the White House Council on Environmental Quality; Gina McCarthy, an EPA administrator in charge of air quality, and others. Al Gore keynoted, and we heard from economists, scientists and a CEO or two during a very full day.

The boss and Vilsack

The Obama people came to sell cap-and-trade, hard. One version of a carbon regulation bill has passed the House, another’s pending in the Senate and the UN meetings in Copenhagen where a global agreement is supposed to be negotiated to replace the Kyoto treaty is just two months away.

Chances are, though, that, the U.S. won’t have legislation by then, which will make it difficult to get a global accord.

That’s because, for all the brainpower and commitment of Obama’s green team, the president has made climate change, at best, his No. 4 priority, behind the economy, health care and the wars in Afghanistan and Iraq. The Republicans haven’t helped on the climate issue, either.

To be sure, Obama & Co. have spent a  fortune subsidizing clean energy through the economic stimulus bill. But that won’t be as much help as a cap-and-trade bill with strong targets.

Here are a few highlights from today’s event:

Climate legislation will be good for farmers, even though it could raise the cost of fertilizer and fuel, Vilsack argued.

“It’s one of the best things that can happen to rural America,” he said.

That’s because the carbon offsets in the House and Senate climate bills will generate revenues for farmers. Offsets are a way that regulated industries, like the utilities that own coal plants, can comply with the “caps” on global warming pollutants by paying unregulated entities – in this case, farmers – to reduce their emissions. (Just trying to explain this makes me dizzy.) So, while the costs of fuel and fertilizer will grow because they are made from fossil fuels, the potential value of offsets to farmers could reach as much as $15 billion a year, Vilsack said. To put that in context, he said, net income to all farmers is about $55 billion a year.

In theory, farmers could be paid for a variety of environmentally-friendly practices that would reduce their carbon emissions. Among them: no-till agriculture, better conservation practices, applying fertilizer in different ways, capturing methane from pigs, cows or chickens or planting trees on underutilized land.

Vilsack said a “yogurt company in New Hampshire” – presumably Stonyfield Farm – could be paid for developing new feed for cows that reduces their emissions, a polite way of saying their burps and farts would be composed of less methane.

Speaking of cows, EPA doesn’t want to regulate them, says Gina McCarthy, the assistant administrator for EPA’s Office of Air and Radiation.

When asked if  EPA will try to regulate carbon emissions from every Dunkin’ Donuts and dairy farm, McCarthy joked: “I am personally going to do that, yes, And I want to make that announcement here in Wisconsin.”

McCarthy, the former head of Connecticut’s department of environmental protection, knows her stuff and talks like a real person, not a like a politician or federal bureaucrat. She said EPA has no desire to regulate global warming pollutants on its own, even though it has been granted the right to do so by the Supreme Court. Of course, that wouldn’t prevent further court challenges. EPA, she said,  would prefer to enforce a cap-and-trade system because it’s more flexible, market friendly and likely to drive innovation.

She admitted, however, that managing offsets will be tough, particularly since the legislation is sure to permit international as well as domestic offsets, and allow offsets for both reforestation (planting trees) and  avoided deforestation (not cutting down trees).

“Offsets are going to be one of the trickiest pieces of any cap-and-trade program,” McCarthy said. “If they’re not sound and they’re not verified and they’re not credible and they’re not permanent, then you don’t have a cap.”

So how, she was asked, would EPA monitor offsets in such places as Indonesia and Brazil? “It’s my new retirement package,” she quipped. The real answer, she added, is that the government will have to rely on third-party auditors.

Gore bored.

Funny thing about Al Gore. I’ve probably heard him speak a half dozen times, and once spent a couple of hours at his home in Nashville while reporting a story (Al Gore’s Next Act: Planet-Saving VC) for Fortune. I always look forward to hearing him because I so admire his commitment to the climate issue. He’s really smart, too, as well as knowledgeable. And, I sense, he’s fundamentally a good guy.

Invariably, I’m disappointed because he simply cannot talk without pontificating. Today was no exception. Aargh! (If you doubt me, listen here.)

Gore did sound an optimistic note about the potential for a Washington breakthrough over climate, even hinting at one point that the Republicans could become supporters of a bill:

The political system of the U.S. and the world share one thing in common with the climate system—both are nonlinear. The potential for change can build up without noticeable effect until that potential reaches a critical mass capable of breaking through whatever barrier has been holding us back.

We’re very close to a political tipping point.

Was that one Nobel laureate talking to another? I hope so. It’s time for President Obama to move climate to the top of his to-do list, so his green team can have a real impact.

In Hudson, a small town nestled in the scenic Appalachian foothills of western North Carolina, the county government is capturing methane, a potent greenhouse gas, from an abandoned landfill and turning it into fuel—with help from General Electric, AES Corp. and Google.

The methane-capture project is the first significant carbon offset deal to emerge from Greenhouse Gas Services, a joint venture of GE and AES, with MissionPoint Capital Partners, that has been operating under the radar since it was formed back in January 2007. Google is the venture’s first announced customer, besides a GE-branded credit card.

Now, with climate-change regulation from the Obama administration on the horizon, Greenhouse Gas Services is aiming to ramp up its business – capturing or reducing global warming pollutants. Recently, I spoke with GHGS’s CEO, Mauricio (Mo) Vargas, who says the GE-AES venture intends to be a major player in the U.S. carbon market.

New Energy Finance predicts that the regulated U.S. market will be worth $1 trillion or more by 2020. Such estimates are little more than wild guesses, but most people who understand carbon markets agree that the U.S. market will be a huge deal.

“We’re the big dogs here,” Vargas says. “Whether that’s true today, that’s not the point. That’s where we are going. We’re going to scale this up.”

“The new administration is pushing climate change legislation extremely hard,” he says.

I met Vargas (below) at AES’s corporate offices in Arlington, where the joint venture operates. AES is one of the world’s largest power companies (132 generating plants in 29 countries on five continents) and an early player—back in the early 1990s—in the carbon business. GE is, well, GE.

Vargas, who is 38, had previously worked for GE, then did a stint at AES and became CEO of the JV last March. He’s got a MBA as well as a degree in mechanical engineering.

He told me that GHGS is pursuing several types of projects, all of which capture or prevent the emissions of greenhouse gases and thereby generatecarbon credits, which the company then sells to corporate or individual customers. Its projects include methane capture from landfills, coal mines or agricultural waste; renewable energy projects that reduce emissions by replacing fossil fuels; or land or forestry management projects that increase the capture of CO2.

“We’d like to build three or four projects with each type of technology, and see how they go,” Vargas says.

Vargas was coy about identifying particular projects to which GHGS is committed, but he said they include a landfill deal in suburban Virginia and a large project to capture methane from cow manure in Minnesota. “It’s not the sexiest of businesses,” he says, referring to the cow dung project.

For now, GHGS is selling carbon credits into the voluntary offset market. Google, for example, is buying offsets in an effort to meet is goal of becoming carbon neutral. (I searched in vain on Google’s site to see if the company has met its goal.)

Buyers of voluntary offsets, like Google, are typically doing so to enhance their reputations, so they are looking for more than carbon credits. They want to be able to talk about how they offset their emissions. So building a wind farm or creating a small-scale hydro project in a poor country has more value than, say, trapping industrial gases from a factory in China.

“They want a story,” Vargas explains. “Coal mines are releasing much more methane than an agricultural project will, but they are less attractive in the voluntary market because they are related to coal.”

The real business opportunity for GHGS will come when the company can sell offsets to companies, most likely coal and oil companies, that will be regulated under cap-and-trade legislation proposed by the Obama administration. Companies that burn fossil fuels will need to either buy allowances that will permit them to emit carbon dioxide, or buy offsets from companies like GHGS.

“Our goal has always been to go into the compliance market,” Vargas says. “The voluntary market is a warm up.”

The GHGS venture is worth watching. I’m pleased that Mo Vargas will speak next month at Brainstorm Green, FORTUNE’s conference on business and the environment.

If you want to learn more about carbon finance, I can point you to a webinar that I moderated last week for the Edelman public relations firm and the Environmental Markets Association. It’s long—about 90 minutes—but it features expert commentary from Thad Heutteman of the consulting firm PEAR, Wiley Barbour of the American Carbon Registry and Mark Grundy of Edelman. You can access the webinar slides from this link.  Here is a link to the audio.

Finally, I did a podcast with Mo Vargas for The Energy Collective that should soon be available there. I’ll post a link when it goes up.

While carbon offsets are controversial and always will be, they have enormous potential to promote an elusive goal: sustainable development. At their best, carbon offsets are a low-cost way to reduce greenhouse gas emissions, transfer clean technology to poor countries and help people out of poverty.

Which brings us to JPMorgan Chase and cook stoves.

The global Wall Street investment bank has begun subsidizing the production and distribution of efficient cooking stoves in Africa, an effort that could expand to India and southeast Asia as well. The project is the topic of today’s Sustainability column on fortune.com and cnnmoney.com. Here’s how it begins:

By any measure, it is a long way from the Park Avenue headquarters of JPMorgan Chase, the global investment bank that generated revenues of $100 billion last year, to the dusty streets of Kampala, Uganda, where a poor woman can buy a new cook stove for about $6.

What connects the big bank to that small transaction is the business of carbon trading.

JPMorgan is quietly pushing the boundaries of the carbon market – a sprawling international experiment to reduce the greenhouse gases that cause global warming – by subsidizing the distribution of efficient cooking stoves in poor countries. Because the new, improved stoves save fuel and produce less carbon dioxide than traditional stoves, they generate so-called carbon credits that can be sold to companies or individuals who want to offset their own emissions.

The business is complicated, controversial and potentially very profitable.

You can read the rest of the column here.

A couple of points that didn’t make it into the column. Odin Knudsen, who runs the carbon markets program for JPMorgan, is incredibly enthusiastic about the cook stove project, not only because of its business potential but because it can do so much good. Odin, who is 65, has worked for more than 30 years on sustainable development and international finance, mostly at the World Bank, and he really knows carbon markets. He told me that one key to really unleashing the power of carbon markets will be to get programs like distributing cook stoves, CFLs or small-scale energy efficiency measures accepted by regulated carbon markets like the EU European Trading Scheme. (Sorry, but this is unavoidably geeky.) Right now, these projects, which are known as programmatic clean-development projects (as opposed to the much-bigger one-off projects, like trapping industrial gases or landfill gas) can be used to generate voluntary credits, but they have not yet been approved by the UN regulators set up under the Kyoto protocol. Credits in the regulated markets are worth a lot more than those in the voluntary markets.

Another thing I learned while reporting this column is that cook stoves are a big environmental and health issue in the developing world. I spoke by phone with Ron Bills, a business guy—he was once CEO of Segway—who now leads a nonprofit called Envirofit, which is distributing super-efficient cook stoves in India. Ron told me that half the world’s people burn biomass—wood, dung, charcoal or agricultural waste—every day, and that this creates a huge problem of indoor air pollution. Envirofit is looking to carbon finance to jump-start its business, which is now supported by the Shell Foundation, among others. Check out Envirofit here.

Carbon neutral, you may remember, was the word of the year back in 2006, but as my friend Joel Makower (executive editor of greenbiz.com, aka the guru of green business) has written, no one knows exactly what it means or even how to define a company’s carbon footprint.

So when Dell announced today that the company had become carbon neutral, I decided to take a closer look in my Sustainability column at fortune.com and cnnmoney.com. Here’s how the column begins:

Dell is announcing Wednesday that it has become carbon neutral by turning out the lights in its offices, buying wind power and protecting endangered forests in Madagascar.

It’s all part of CEO Michael Dell’s commitment to make the company that he started back in 1984 “the greenest technology company on the planet.”

But what, exactly, does becoming carbon neutral mean?

It turns out that there’s no agreed-upon definition of carbon neutral, even as rock groups like the Rolling Stones, events like the Super Bowl and the Oscars, and a growing number of companies have set carbon neutrality as a goal.

You can read the rest here.