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Credit for Clean Air

Climatologists understand better than politicians that the Earth's air doesn't come with geographical boundaries. And that basic principle has guided the process as scientists, U.N. officials and representatives of various nations have worked on ways to reduce atmospheric pollution from factories, cars and farms.

They agreed that each developed nation should reduce its emissions by a certain percentage. But they also understood that each individual company that pollutes wouldn't meet its country's target precisely. Some companies, they knew, would be able easily to reduce their pollution levels by more than the stipulated percentage. Other companies, however, couldn't, or wouldn't.

Those realities eventually took shape in provisions of the Kyoto Treaty, which went into effect in February. Companies that reduce their emissions beyond the targeted amount can sell the "excess cleanup" in the form of credits. Companies that can't meet the target can purchase the credits.

The credits can be sold across borders among companies in countries that signed the Kyoto Treaty or are designated as developing countries.

The treaty creates an "emissions trading" system to encourage buying and selling the credits, which are known in various parts of the world as ERs, CERs, VERs or ERUs. The treaty also includes a U.N. mechanism that encourages companies in industrialized countries to partner with companies in less-developed countries that are limiting emissions. The European Union, meanwhile, put its Greenhouse Gas Emission Trading Scheme in effect this past January.

The market-based approach, at least potentially, allows science and economic reality to co-exist. The bottom line for companies is an affordable cost of reducing pollution. The bottom line for climatologists is reducing the overall level of pollutants in the Earth's atmosphere -- it's immaterial to them where the individual reductions in pollution originate.

While the U.S. has not signed the Kyoto Treaty, a Florida firm is one of a handful in the U.S. that are getting a toehold in the emissions-trading markets emerging as a result of the agreement. AgCert, a 3-year-old Melbourne company, is moving aggressively to generate and sell the credits, primarily in developing countries. "We saw untapped potential," says Todd Jones, sales and marketing vice president for AgCert.Chicago's Climate Market

The Chicago Climate Exchange is a pilot program for greenhouse gas emission reduction and trading. Members as diverse as International Paper, Baxter Healthcare and Amtrak have made a voluntary commitment to reduce their emissions of greenhouse gases by 4% below the average of their emissions by 2006.

Anticipating the market for pollution credits, the company in 2002 began developing a method of reducing and quantifying the methane and nitrous oxide output -- types of greenhouse gases -- from agricultural waste. AgCert did the original research under a Cooperative Research and Development Agreement with the U.S. Agricultural Research Service.

One of AgCert's proprietary techniques involves specially designed storage facilities, called biodigesters, to process massive amounts of waste. The biodigesters are lined with impermeable material, covered and fitted with tubing to collect the gases.

The amount of methane and nitrous oxide gas that's emitted is metered and measured. Then the measurements are compared against the amount of gas that the same amount of waste would have emitted without treatment, and the amount of "savings" is calculated. That amount of savings is converted into emission reduction credits. The gases are then used to fuel generators.

Today, the company has long-term contracts with farms in Brazil, Canada, Mexico and the U.S. It is working on deals with farms in Chile and Argentina.

In October, AgCert's methodology was approved by the U.N. board overseeing climate change issues. AgCert, because it developed and implemented the system, gets the credits, sells them and passes along some of the profits to the farms. The buyers are companies in countries that are now required to meet the emission reduction goals of the Kyoto Treaty or the European Union's Greenhouse Gas Emission Trading Scheme.

AgCert made its first sale last fall to a Dutch energy company, Nuon. AgCert will deliver several million tons of CERs to Nuon from 2005 to 2007.

Jones says AgCert is in talks with seven to nine other companies, primarily European, and preliminary sales or term sheets with two Japanese companies that it met through its Japanese partner, Itochu Corp.

Potential markets
Although most of the action for AgCert and other companies producing and selling emission reduction credits is in Europe and Asia, there are some moves toward emission reduction requirements in the U.S. that are unrelated to the Kyoto Treaty. Nine New England and Mid-Atlantic states have set up the Regional Greenhouse Gas Initiative, or RGGI, with the goal of setting caps and trading rules on carbon dioxide emissions from power plants. RGGI hopes to have the plan in place this spring, and in the future it may extend the program to other sources of emissions and gases other than carbon dioxide.

In 2003, Sen. John McCain and Sen. Joseph Lieberman introduced legislation that would cap the 2010 greenhouse gas emissions level at 2000 levels for various economic sectors, including electricity generation and transportation, and allow companies to acquire some of their emissions allowances from other companies. The Senate bill did not pass and, as of February, had not been reintroduced in the new Congress. Dutch energy company Nuon has bought several million tons worth of credits from AgCert.

AgCert also is working with farms in the Midwest to reduce agricultural waste emissions -- even though there isn't yet a market for the credits since the U.S. is not party to the Kyoto Treaty. The company also is researching ways to reduce emissions from the citrus industry and other Florida farming operations. That research is at least a year away from coming to fruition. "We are committed to working with Florida agriculture," says Jones.

AgCert is relying on its two shareholders for financing. The first is Melbourne-based XL TechGroup, a group that launches technology companies and recently went public on the Alternative Investment Market, an affiliate of the London Stock Exchange for early-stage companies. The second investor is Andlinger & Co., a private investment firm with offices in Vero Beach as well as Tarrytown, N.Y., Austria and Belgium. Andlinger's president, Merrick G. Andlinger, is chairman of AgCert.

When will AgCert's research start paying off? The company predicts that 2005 will be the company's breakout year, with its first revenue as well as a profit.