Credits offer profits for going green

SAN FRANCISCO -- From a 12th-floor conference room overlooking the Financial District, four traders deal in an obscure but increasingly important corner of the investment world.

The traders at the Cantor Fitzgerald brokerage firm specialize in air pollution. They buy and sell emissions permits that allow industry to create smog in Los Angeles, say, or acid rain in the Northeast. Their belief: Greed can help save the planet.

"The public benefits because the air gets cleaner as a result of the profit motive," said Josh Margolis, managing director of the firm's pollution-trading arm, CantorCO2e.

That philosophy is about to be tested like never before. California is establishing a "cap and trade" market for greenhouse gases that will serve as a centerpiece of the state's crusade against global warming.

As envisioned by Gov. Arnold Schwarzenegger and other advocates, the market will work like this: Starting in 2012, state regulators will distribute, either free or through an auction, a set amount of emissions permits to power plants, cement manufacturers and others. These permits cap the volume of carbon dioxide and other greenhouse gases they can emit. The cap will ratchet down over time, and firms unable to sufficiently reduce their emissions will have to buy permits on the open market.
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