Fred Krupp

What a different just a few years can make. Hard as it is to believe, there was a time not long ago when Congress appeared to be on the verge of a bipartisan agreement to regulate global warming pollution.

Republicans John McCain, John Warner, Newt Gingrich and Tim Pawlenty all supported efforts to put a cap on greenhouse gas emissions. Gingrich and Pawlenty went so far as to appear in commercials with the Environmental Defense Fund supporting climate regulation. And now?  “It was a mistake, it was stupid, it was wrong,” Pawlenty says.

The radical shift in the political climate means that big NGOs like the Environmental Defense Fund, the Natural Resources Defense Council and the Sierra Club now must fight merely to  preserve the status quo in Congress.

Environmental groups are playing defense rather than offense in Washington, said Fred Krupp, the president of the Environmental Defense Fund,  during a panel today on climate policy that opened FORTUNE’s Brainstorm Green conference.

He noted that House Republicans have voted to block funding not just for EPA’s efforts regulate carbon pollution (efforts that are required by a Supreme Court decision) but also for EPA efforts to control, on public health ground, mercury pollution from cement factories.

On climate issues, Fred said: “It’s hard to have a meaningful exchange of viewers, a serious conversation in Washington.”

That’s a big, big problem because, as he noted, every major piece of environmental legislation in the U.S has been enacted with bipartisan support. Fred himself was a leading advocate for the  late 1980s cap-and-trade system–to regulate sulfur dioxide pollution–that was put into place by President George Bush and his EPA chief, Bill Reilly.

I moderated the panel on climate policy that included Fred, Jim Rogers, the ceo of Duke Energy, Connie Hedegaard, the EU commissioner for climate and Michael Shellenberger, the president of the Breakthrough Institute. It was, unfortunately, a little grim. All of the panelists agreed that despite nearly 20 years of talk at the highest levels of government and business about global warming, global carbon emissions continue to grow. They’re up by 40%, roughly, since 1990. Neither China nor the U.S has agreed to put a cap on  emissions or tax fossil fuels.

What’s the best path forward, I asked? No one had a simple or single answer. Shellenberger argued for a shift away from making fossil fuels more expensive towards policies that will make clean energy cheaper, by investing government funds in clean energy R&D, both through government grants and military procurement. His Breakthrough Institute has thought and written a lot about how to make this happen, but it’s likely to require more, not less, government spending, which is a hard sell in today’s Congress.

Connie Hedegaard

Hedegaard noted that the EU is going forward with cap-and-trade — a regulatory scheme in which governments set a declining cap for  carbon emissions, and then auction or give away permits to pollute, which can then be traded among companies — and that its market could soon be linked to others. She was on her way to a meeting with Gov. Jerry Brown of California to talk about linking California’s cap-and-trade regime to the one in Europe and to another under development in China.  “Is cap and trade too complicated?” she asked. “It might be for the Americans. it’s not for the Chinese.”

Rogers lamented the fact that, at least for the moment, the nuclear accident in Japan will slow down the development of new nuclear plants in the U.S.  He said nuclear is a safer energy source than coal, without even taking climate change risks into affect. “Nuclear is clearly part of the climate solution,” he said.

The session flew by quickly, and I neglected to thank all four panelist for the time, energy and brainpower they have all devoted to trying to do something about the climate threat. I wish that together we’d come up with better answers to the question of  “where do we go from here” but it occurs to me now that that was too broad a question.

A better question might have been, how do we make the environment a bipartisan issue again? Or, how can  “greens” engage with Republicans around climate? Because until that happens, environmentalists will continue to play defense in DC. I had a brief chat about this at Brainstorm Green with the rarest of creatures, a moderate Republican–Theodore Roosevelt IV–and I hope to address that questions soon.

The Sierra Club and American Electric Power, the nation’s largest coal-burning utility, don’t agree on much, but there is this:

Money does grow on trees.

Along with other big environmental groups and such businesses as Duke Energy and El Paso Corp., they are part of a coalition that wants to use markets to protect the world’s forests and curb climate change.

Jeff Horowitz

The coalition—called Avoided Deforestation Partners, a name that will never win a branding contest—is the brainchild of Jeff Horowitz, a 58-year-old architect and newcomer to the environmental movement who has quietly become an influential player as climate change legislation inches its way through a divided Congress.

Protecting forests “is our single most important strategy, with respect to solving the climate crisis,” Horowitz says. “If we don’t tackle forestry immediately, we can’t buy enough time to get at the technological advances we need and scale them.”

I met Jeff in December at the UN climate talks in Copenhagen, and visited him last week at his office in a lovely, hilly neighborhood of Berkeley. A mechanism to protect forests by steering millions of dollars from the developed world to poor countries, known as REDD (Reducing Emissions from Deforestation and Forest Degradation), was endorsed by governments in Copenhagen, so Horowitz felt good about the climate talks. “As far as we’re concerned, Copenhagen was a tremendous victory,” he told me.

Now he wants to make sure that forestry offsets are part of a U.S. climate bill. That will enable regulated polluters in the U.S. to offset their carbon emissions by paying to protect forests elsewhere. Protecting forests is a cheaper and quicker way to curb emissions than by switching from coal or natural gas to low-carbon energy sources like nuclear, wind or solar power.

While offsets are controversial, no one doubts is that protecting forests matters: Scientists estimate that nearly 20% of the world’s greenhouse gas emissions come from deforestation, as trees are slashed and burned to make way for agriculture. Standing forests also act as carbon sinks by absorbing CO2. Environmentalists and governments from Norway to Brazil have for decades tried to stop deforestation, but they  have made limited headway.

Neither afforestation (planting trees) nor avoided deforestation (stopping trees from getting cut down) were part of the Kyoto climate agreement, largely because of opposition from enviros. They argued that forest protection could not be reliably monitored and verified and that offsets would allow polluters to avoid mending their ways.

Critics of forestry offsets worry about arcane concepts known as “leakage” (paying to save one forest only to have another one nearby cut down) and “additionality” (how do you know the forests would not have been saved anyway?). They’re right that if mismanaged, offsets could do more harm than good.

Brent Blackwelder, president of Friends of the Earth, which released a 28-page report attacking offsets last fall, said: “Offsetting does not lead to promised additional emissions cuts in developing countries while it delays essential structural change in the U.S. economy.”

But the politics of offsets have shifted in the last year or two, in part because of Horowitz’s persistent behind the scenes efforts. Early on, he enlisted the support of Nobel Peace prize winner Wangari Matthai, the founder of the Green Belt Movement, which planted trees across Africa. Her fellow Nobel laureates Al Gore and Oscar Arias came around as well. A key turning point, in retrospect, came when Carter Roberts, the president and CEO of  the World Wildlife Fund U.S., spoke in favor of market mechanisms at an ADP event. The WWF had previously opposed offsets.

Last year, Horowitz and ADP — other members include Conservation International, Environmental Defense, NRDC, The Nature Conservancy among green groups, and PG&E, Marriott, Starbucks and Walt Disney among companies–developed “consensus principles” on forest offsets. They call for both public and private money to be steered to forestry protection.

Horowitz argues that the best way to overcome objections to offsets is to regulate forestry projects to insure that they are real, verifiable and long-lasting. Besides lobbying in Washington, ADP is developing a protocol to help poor communities seek financing to protect and monitor forests. “This allows indigenous groups to team up with NGOs, without hiring expensive lawyers they can’t afford,” he says.

Meanwhile, he explains, there are three categories of companies that can profit from forestry offsets.

If climate legislation passes, regulated utilities and their customers will save money by using offsets rather than shutting down coal or natural gas plants.

Branded consumer companies like Marriott, Disney and Dell, whose emissions are not regulated, use offsets to establish their green cred and burnish their reputations. (See my blogpost about Marriott and this press release from Disney, Conservation International, The Nature Conservancy and The Conservation Fund.)

Finally, a entire industry of project developers, carbon traders, verifiers and regulators has emerged to create and manage offsets. “There is profit all along that food chain,” Horowitz says, “and in my view that’s good.”

A native New Yorker, Horowitz designed large-scale projects around the world as an architect and became concerned about deforestation. He previously founded a nonprofit called Urbanists International, which provides design  and land planning services to developing countries, and was vice chair of Equator International, a forest carbon firm. He and his wife, Lynn,  own Rio Lago Ranch and Vineyard, which produces cabernet sauvignon grapes for the Clos du Bois Winery of Sonoma.

But his energies now are focused on forestry, with the goal of making it more profitable to preserve forests than it is to cut them down.

Thereby proving that your parents were wrong.

–

Disclosure: I was paid in Copenhagen by the Coalition for Rainforest Nations to host a celebration of REDD.

As humans, we’re wired to focus on the now. I want a new gadget now. I want a slab of pie now. I’m busy now, so I don’t have time for politics. The consequences—consumer debt, a sagging waistline, a Congress beholden to special interests–all arrive later.

You can think about global warming as a now-and-later problem. Governments need to take unpopular actions now to deal with a problem that will do most of its damage later. Businesses need to look beyond the next quarter to the next quarter century.

This evening in Elsinore, Denmark, top executives from such companies as Coca-Cola, Duke Energy, Goldman Sachs and Google took the long view in a fitting venue: Kronborg Castle, a 15th century castle best known as the setting for Shakespeare’s Hamlet. Sitting in a magnificent castle that’s been preserved for six centuries makes you wonder what impact the goings-on on Copenhagen this week will have on the world in 60 or even 600 years.

In that context, it seems prudent to invest now to insure against a climate catastrophe, no matter how distant–even if the short-term result is  a slight drag on short-term economic growth

As Tracy Wolstencroft, global head of environmental markets for Goldman Sachs, put it: “The economy is a wholly owed subsidiary of the environment, not the other way around.” That is, if we ruin the environment, there’s no economy left.

Or, as Muhtar Kent, the CEO of Coca-Cola said: “It is absolutely imperative that our voices be heard and our commitments to low carbon be fully understood.”

It turns out there’s a big contingent from corporate America in Copenhagen.  Among the high-profile companies here: GE, Microsoft, Cisco, DuPont, Johnson Controls, Nike and North Face. (Here’s a column by Mindy Lubber, president of Ceres, about efforts by some companies to lobby for a strong climate deal.)  Not surprisingly, most favor a global agreement to regulate carbon emissions.

A strong agreement, they said, will drive companies  to make the investments needed to usher in low-carbon economy.

As an example, Wolstencroft recalled that China’s five-year released in 2005 made a commitment to low-carbon energy. What followed, he said, was a $5.4 billion acquisition by Toshiba of Westinghouse’s nuclear energy business and capital investments  of another $5 billion in Chinese solar power companies, which have since emerged as world leaders.

“What we hope comes out of Copenhagen,” Wolstencroft said, “are even clearer rules that help give investors the confidence…to put money into clean technology.”

Clean tech, he said, is “one of the largest emerging markets the world has seen.”

Duke Energy’s CEO, Jim Rogers, also said that China has the ability to both plan long-term and act rapidly. “They lead in the production of solar panels and wind turbines,” he said. “They’re building 13 nuclear panels with more on the drawing board. They’re ahead in battery technology.”

Duke has a joint venture with a Chinese firm to build a coal plant that, if all goes according to plan, will capture and store carbon emissions.

“The Chinese can scale and deploy this faster than in the U.S.,” Rogers said. Duke’s investment in so-called clean coal won’t pay off in the short run, he said, “but we need a full-court press to make that a reality.”

Google, too, is investing in energy and climate projects with long-term horizons, said Dan Reicher, the firm’s climate guru. Its engineers have reconfigured Toyota Priuses into plug-in electric cars, and they are deploying Google Earth software to track deforestation.

Google’s Power Meter, which is being tested with utilities around the world, gives consumers real-time information about their electricity use, to incentivize them to conserve energy. Waving his cell phone, Reicher said: “I can get information about electricity use at my home in California on this smart phone.”

Several of the execs noted that many low-carbon technologies are available today, albeit at a price. Denmark gets 20% of its electricity from wind turbines, but wind-powered electricity costs more than coal-fired power. Denmark also has big plans for electric cars, but they require just-as-big government subsidies.

In theory, at least, there’s a future payback for those current outlays. Anders Eldrup, president and CEO of Copenhaven-based Dong Energy, which has 1 million customers in northern Europe and is shutting down many of its coal plants, says clean energy technology has surpassed agriculture as Denmark’s leading export.

While there’s no way to know for sure, my sense is that the companies here in Copenhagen don’t reflect the mainstream of corporate America, where big lobbies like the U.S. Chamber of Commerce and the National Association of Manufacturers oppose the climate bills pending in Congress. They’d rather pay later than pay now.

That’s a big a gamble, of course. It’s been a long time since I studied Hamlet but, to the best of my recollection, at the end of the play, just about everybody dies.

Let's hope the Copenhagen climate talks are not much ado about nothing

3. 12. 41.

Of all the companies in the U.S., Duke Energy is the 3^rd largest emitter of CO2. Of all the companies in the world, Duke is the 12^th biggest emitter. And if North Carolina-based Duke were a country, it would rank No. 41 in terms of greenhouse gas emissions, ahead of entire nations in Europe, Africa and Asia.

And yet…Jim Rogers, Duke’s longtime president, CEO and chairman, is pushing as hard as anyone in corporate America to get a climate-change bill passed by Congress. His company helped the U.S. Climate Action Partnership get going, and he was key in getting some (but not all) utility-company CEOs to support carbon regulation.

“We’re very focused on legislation getting done in the U.S. this year,” Rogers says.

Indeed, Duke is “operating today as if climate legislation has already passed,” Rogers says. The company is investing in nuclear power, cleaner coal, wind, smart grid technology, efficiency and solar energy. Rogers says:

We’re in the most transformative period in the history of the power industry, Our mission is to decarbonize our entire fleet.

I sat down with Rogers last weekend after he spoke at the Society of Environmental Journalists conference in Madison, Wisconsin. He’s a pleasure to interview—he answers questions, he’s direct and he’s charming. (He used to be a newspaper reporter so he knows how to tell a story, too. You can listen to excerpts of our talk in a podcast at The Energy Collective, where I’m a lead blogger. ) By the end of our conversation, I had a better understanding of why Rogers and Duke have become advocates of a cap-and-trade scheme to regulate global warming pollution.

Rogers, who is 62, has been a utility-company CEO since 1988. He’s also been a consumer advocate (as an assistant attorney general in Kentucky) and a federal regulator (at the FERC) so he sees issues from different perspectives.  More important, Duke Energy is, for the most part, a regulated utility—meaning that its major investments and electricity rates must be approved by state public utility regulators. So if Rogers can convince those regulators that his investments in low-carbon power generation make sense, he should be able to make a good return.

“Moving to a low carbon world is an earnings opportunity for me,” Rogers said. “If I have to retrofit my fleet, that’s earnings growth.” That’s assuming, of course, that state regulators will permit him to raise rates for customers to cover the costs of renewable power, cleaner coal or new nuclear plants.

This helps explain why Rogers doesn’t try to pretend that the transition to a low-carbon world will be easy or cost-free. He needs to set the stage for future price increases that he knows are an inevitable. He says:

As we transform, as we invest in renewables, as we invest in smart grid, as we invest in retiring existing plants  and building new plants, the price of electricity is going to go up.

Certainly Duke’s plans are ambitious. The company wants to spend about $20 billion to build two nuclear plants, whose ownership would be shared with other utilities and major customers. “Nuclear is key to our ability to produce baseload electricity with zero greenhouse gas emissions,” Rogers says.

Duke also plans to build two coal plants, at a cost of $5 billion, one in Indiana that would be designed so that it could capture and store carbon, the other a conventional but highly-efficient plant in North Carolina. The North Carolina plant, called Cliffside, has generated lots of opposition, but Rogers says it’s needed to enable him to shut older plants that generate more local pollutants.

“I have to balance affordability, reliability and clean,” he says.

Duke also would like to invest about $1.5 billion in gas combined-cycle plants, which have lower emissions than coal plants, another $1 billion on wind farms spread across 14 states, another $1 billion on so-called smart grid technology and smaller amounts on rooftop solar, biomass and landfill gas. The company is also aggressively promoting energy efficiency to homeowners and businesses.

Interestingly, Rogers confounds critics at both extremes of the energy and climate debate. Some other utility-company CEOs think he has been too quick to embrace carbon regulation, while environmentalists fault him not only for wanting to build new coal plants but for his blunt talk about costs and skepticism about the claim that carbon regulation will create “green jobs.”

“I think it’s a mistake for us to talk about the green jobs that will be created from renewables,”  he says.  “We run the risk of misleading the America people.”

Rogers can’t afford to promise more than Duke can deliver, if only because he needs to prepare his regulators and customers for the shocks ahead. Indeed it’s striking the degree to which Duke’s business depends on elected officials and regulators in Washington and the state capitals who make energy and climate policy, set utility rates and determine his rate of return.

“I say to people that I’m in the power business,” Rogers observes.

“Electricity is only a byproduct.”

Not everyone loves Jim Rogers and Duke

Here comes a new carbon finance market, this one with Chinese characteristics.

In the latest sign that China takes the threat of global warming seriously, Chinese business executives with close ties to the government have launched a voluntary market in Beijing to buy and sell carbon credits.

Just don’t call it cap-and-trade, which is the regulatory approach embodied in the climate legislation pending in the U.S. Congress. The “cap” part of cap-and-trade remains anathema in China. As a developing country where billions of people earn less than $3,000 a year, China simply won’t accept mandatory limits on its emissions of greenhouse gases.

David Yarnold, Environmental Defense Fund

But the Chinese have enlisted western partners to build a market that will, as they put it, “limit and incentivize.” The theory is that a voluntary market in carbon credits will limit emissions by providing financial incentives to Chinese companies to develop renewable energy, promote energy efficiency and, above all, find environmentally-friendly ways to burn coal. Some of that money would come from outside China and would would come from within.

This could lay the groundwork for a mandatory market in the not-too-distant future.

That, at least, was my takeaway from a Low Carbon Conference held today in New York that brought together leaders of the world’s big stock exchanges, energy industry executives, environmentalists and experts in carbon finance. [Disclosure: I hosted the event for BlueNext, a French company that recently announced a partnership with the China Beijing Environmental Exchange to develop carbon trading in China.] Not surprisingly, the Chinese are looking for money from the west, specifically from companies and governments looking to offset their emissions. They argue that they can reduce emissions faster and cheaper than the U.S. or the EU. But they also expect to raise money from businesses and individuals in China that care about climate change.

One company represented at the event, the Tianping Insurance Company, has said it will become China’s first carbon neutral business, in part by buying credits. It bought its first credits last month.

David Yarnold, the executive director of the Environmental Defense Fund, which has worked with the Chinese to develop a carbon market, put things in perspective nicely:

This new partnership between Wall Street and the Great Wall flies in the face of conventional wisdom.

Today, you will witness tired conventional wisdom drawing its last breath. You will learn that China is no laggard in the race to develop clean energy and reduce global warming pollution. In fact, it is moving ahead.

Just five years ago, who would have thought that the New York Stock Exchange would be hosting a meeting on carbon trading? Who would have thought that China would have an environmental exchange?

Of course, it’s no surprise that Yarnold and business-friendly EDF, which pioneered emissions trading in the U.S. during the first Bush administration, would endorse a market-based solution to climate change. As he put it:

Many believe markets are the source of environmental problems.  They think that the relentless search for profit that leads to the sacrifice of the environment and that money is the root of all environmental evil.  In contrast, here we are, convening to assess how markets can be put to the service of environmental protection, how markets can be the engine of innovation that will support the growth of the new low carbon economy.

What was striking was to hear Chinese executives like Xiong Yan, chairman of the China Beijing Environmental Exchange, who has impeccable Communist Party credentials, wholeheartedly agree that banks like Merrill Lynch and Citi and utilities like Duke Energy need to help solve the climate crisis. Merrill, Citi and Duke were all invited to speak by the Chinese, who shaped the agenda for the event.

While there was lots of talk about wind, solar and efficiency, the conversation – like so many conversations about climate – inevitably kept coming back to the question of coal. China gets about 80% of its electricity from coal. The U.S. gets about 50%.

Jim Rogers, Duke Energy

“Coal binds the U.S. and China together,” said Jim Rogers, CEO of Duke Energy, a major coal-burning utility as well as a supporter of a mandatory U.S. carbon cap. “Our challenge is to find a way to use coal in a low carbon world.”

Duke is betting on the technology of carbon capture and sequestration. By contrast, a Chinese coal executive touted the virtues of using algae to absorb CO2 emissions. Whatever technology proves to be most effective–assuming clean coal is more than a distant chimera–ought to be shared quickly and widely, U.S. and Chinese execs said.

For more on China’s role this week in New York, where President Hu Jintao addressed the United Nations, see Is China Turning Into the Climate Good Guy? by Time’s Bryan Walsh and Are Chinese Emissions Pledges a Game Changer for Senate Action? at Joe Romm’s Climate Progress.