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Business | Environment | Economy

Oregon Boasts Of First 'Carbon Quant'

In China Tuesday, President Barack Obama said an upcoming climate change summit should establish a draft pact on greenhouse gases.

Many hope the Copenhagen summit will set up a global carbon trading market, along the lines now being set up in California.

In Oregon, some entrepreneurs see a public good – and private gain – in these markets.

Ethan Lindsey reports.

In a cramped, institutional hallway on the Portland State University campus, two researchers are doing their best to recreate this….

Sound: CBOT Trading pit.

That's the soybean-trading pit at the Chicago Board of Trade.

Tom Fielden is not a trader. He's a mathematics doctoral student. He doesn't scream about soybeans. Mostly, he looks at his computer screen.

Tom Fielden: "Let's look at the table to see. Oh, they bought some California nitric acid from the chemical industry. And it was only $1.11 per ton, perfect."

Fielden's professor and advisor is Steve Bleiler. And Bleiler says what you have here is Oregon's very first ‘carbon quant'.

Steve Bleiler: "Where does the word ‘carbon quant' come from?  About a decade and a half ago, finance was revolutionized by quantitative analysts — quants. It used to be some grizzled old trader that ran the shop, and made the decisions by the seat of his pants, but it was discovered that ‘gee, there are actually underlying mathematic principles here.'"

Bleiler says ‘quants' use math, instead of intuition, to buy and sell things.

Over the next several years, California, many western states, and others all plan to launch carbon trading markets.

So Tom Fielden built a computer model to calculate how much it's worth for companies to cut back on their emissions.

For instance, it may be inexpensive for landfills to reduce their CO2.

By cutting their emissions, landfills could then sell their emissions savings to, say, a cement factory, that can't cut emissions that cheaply.

Tom Fielder: "There are means of control to say, who are we going to cap? What industries? Cement industry, yes or no? Landfills, yes or no? Well, how about we go think about all the industries you are thinking about putting a cap on? And we'll put a button on a screen. Check it for yes, leave it off for no."

His computer model isn't much to look at. It's mostly text and graphs.

Tom Fielden: "Ok, who is a possible source of offsets. What industry could they possibly come from? Ok, more buttons!"

Fielden's not the only one working on this. Others are building rival models.

Bleiler says that's the advantage of a market approach.

Steve Bleiler: "This is the time-honored tradition in America. We are going to give people's worst motives an incentive to do the most public good."

And so the PSU computer model won't just be available to regulators.

Businesses could use it to ask the question, ‘how much will it cost me to offset my emissions?'

In fact, a Bend businessman, Jeff Witwer, has started a company called Carbon Neutral Plane.

He helps pilots buy carbon credits to offset their burnt jet fuel. And he can buy his offsets from all over, including locally.

Jeff Witwer: "There's also a lot of different bodies that certify, if you will. And so, as the market improves, the buyer, like I am doing on behalf of our members, a choice  of type of project, geographical area, and then also what are the standards to which they comply."

It's just like that soybean trading pit. In capitalism, when there is a buyer and a seller and a market – that attracts even more businesses.

Steve Bleiler: "There's going to be investment houses that are going to look at this in the abstract and say, are there arbitrage opportunities here to not just mitigate the cost, but to actually make money."

And that worries some. Will the bankers try to game the system?

In fact, there are critics who blame the quants for incorrectly valuing mortgage risk, and sparking today's recession.

Steve Cliff is with the California Air Resources Board. He says, the main reason to create this market is to try and reduce carbon emissions.

Steve Cliff: "This is a conversation that will continue to evolve over the next year, but if a particular entity is interested in investing in such a way that it causes a reduction, and allows one to trade more, than we see real reductions in the atmosphere."

But Bleiler says quants, carbon or otherwise, are just tools.

Steve Bleiler: "Well, here's the thing. You've given me a job opportunity in your kitchen, and I've invented this really great tool that I call the knife, and you know it does this marvelous thing with fruit. And then you cut off your arm with it. Now, remember, quants weren't the ones making the investment decisions."

California lawmakers may not have considered carbon quants when they approved cap and trade.

But it's the way the market operates – and how it will look when California turns the lights on in its carbon-trading marketplace in 2012.