Can capitalism and environmentalism go hand in hand? A new breed of financiers thinks so, and is making money by treating air pollution as a commodity. Here’s how it works: Companies are required to cut their emissions to a certain level; if they do better than those targets, they can sell pollution credits to other companies that are still exceeding allowable emissions levels. The emissions targets are set by a variety of agencies, from state governments to the U.S. EPA. Most of the trading, however, is spurred by the possibility of international caps on CO2 emissions under the terms of the Kyoto Protocol on climate change. Although the U.S. is no longer a party to the protocol, some companies are preparing themselves for the possibility that a future administration could impose CO2 emissions regulations. Of the many air pollution trading ventures, the SO2 market is the oldest and most successful; the newest is a renewable energy market, inspired by British regulations requiring utilities to generate 3 percent of electricity from alternative energy sources such as solar and wind.

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