Cap-and-trade could boost energy markets, executive says

Mar 9, 2010 — Tulsa World

Kyle Arnold

Mar. 9, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- A cap-and-trade program could create a $13.2 trillion industry and result in massive investments in dozens of energy-related markets, says Chansoo Joung, a managing director at the Warburg Pincus LLC private equity firm.

An extensive carbon dioxide program in the United States likely would be irreversible because of the amount of money involved, Joung told those attending a Friends of Finance luncheon Tuesday at the University of Tulsa.

"The cap-and-trade market could be as big as the stock market," he said.

Joung's firm has its hands in several sectors of the energy industry and has invested some $600 million into Tulsa-based Laredo Petroleum Inc. His position at Warburg focuses on emerging energy sectors, which has caused him to focus on cap-and-trade programs and climate-change research.

Politicians and energy experts have been discussing a cap-and-trade program that would create a market for carbon dioxide "credits." Under such a program, companies that help offset carbon dioxide in the atmosphere -- a forester that plants trees, for example -- could sell credits to polluting companies, such as energy plants and manufacturers.

Joung said a cap-and-trade program would create a massive market where carbon credits are traded like stocks. The value of the credits could total anywhere between $3.3 trillion and $13.2 trillion, he said.

The U.S. House of Representatives passed a cap-and-trade program last year that aims to cut carbon dioxide more than 75 percent by 2050.

While the market may only be worth a few billion dollars a year, Joung

said companies would finance their future carbon credits to create the massive trading exchange.

The program might also add significant costs to gasoline, airline flights and electricity -- essentially any product that needs energy.

The exact costs and impacts, especially on parties like energy companies, are hard to estimate because of the scope of cap-and-trade, Joung said. However, he said investments from companies to lower emissions would be so costly that it would be practically impossible to end such a program.

"Once you start, it you can't stop it," Joung said. "You can't create a $13 trillion market and then just get rid of it." Joung said the reality of a carbon-trading program may depend on future climate data. He noted that the climate-change debate has become so politicized that it's difficult to ascertain what man-made pollution is really doing to the planet.

Worldwide economic problems and accusations of forged data by a few climate scientists have helped decrease the global emphasis on climate change, Joung said, but the topic won't go away.

"If things keep going the way they are, this will be a shockingly important issue," he said.

Newstex ID: KRTB-0205-42729719