The potential for purchasing worthless credits explains why a few finance chiefs are already getting into the carbon issue. Denault says Entergy's finance group examines all offsets the company purchases. "Like any commodity, we want to make sure that the credit will have future value," notes Denault. "We want to make sure we're purchasing real securities."

Limits Are Coming
At this point, the future worth of a carbon commodity is tough to call. What seems easier to suss out: Congress will undoubtedly place some sort of carbon restrictions on corporations in the next three years. Managers who dispute the assertion are misreading the signals now coming out of Washington. As Hirshberg points out, "Businesses now back carbon legislation."

Most likely is a federally mandated cap-and-trade system, like that proposed by Sen. Joseph Lieberman (I–Conn.) and Sen. John Warner (R–Va.), whereby businesses will be given specific carbon-reduction targets. Such a scheme will likely require businesses to reduce their emissions by a certain percentage from a previous year (known as a baseline year). But at this point, it's unclear what year Congress will choose as the baseline.

For early movers, such as Stonyfield, that means any credit purchased or produced in the run-up to legislation might end up being worthless. But the yogurt-maker's commitment to CO₂ reductions also serves to emphasize the company's "green" image among consumers. Managers like Denault understand that industrial businesses — and particularly power providers — produce the most CO₂ emissions. They therefore stand to be hardest hit by federal carbon legislation. Stashing credits helps hedge that risk. "Those credits may have value in reducing your [carbon] profile," says Denault, "but that's assuming legislation allows for them."

The uncertainty surrounding carbon credits has not deterred many U.S. businesses from jumping into the offset game, however. Nike has not only purchased offsets, it has produced them. The apparel maker generated the credits through an agreement signed in 2001 with the World Wildlife Fund's Climate Savers. Under Climate Savers, a voluntary program that both sets reduction targets and verifies participants' progress, Nike agreed to lower greenhouse gases from company-operated facilities and employee business travel some 13 percent by 2005 (from a 1998 baseline). Notes Sarah Severn, a director in Nike's corporate responsibility group: "We wanted to go through a registered and verified process with Climate Savers in case there was an opportunity to trade the credits."

All in, Nike reduced its greenhouse gases by 18 percent from 1998, far exceeding its agreement with Climate Savers. And in the process, Nike has amassed a registered balance of nearly 8 million metric tons of emission reductions. Other companies, including Whirlpool and DuPont, are also sitting on sizable caches of credits.

Nike did end up selling some credits, which came from the company's reduction of a powerful greenhouse gas called sulfur hexafluoride (SF6). In March, Nike sold 100,000 metric tons' worth of Verified Emission Reduction credits to Entergy, which has also purchased offsets from, among others, Andarko. So far, Entergy has not applied the Nike credits to reduce its corporate carbon footprint. "We're not sure what we'll do with them," says Brent Dorsey, director of environmental programs at Entergy. "So right now we're banking the offsets." Dorsey says the credits, along with in-house carbon reductions Entergy has made, "give us something of a cushion" should federal regulations accommodate banked credits.

What's Wrong with RECs
One offset those regulators will likely recognize are RECs, which are derived from clean energy sources like wind farms and hydroelectric power plants. While power generators can sell the so-called green tags directly, most rely on third-party aggregators. In some cases, those brokers purchase existing RECs from power producers. In others, they buy the rights to future RECs by financing fledgling alternative-energy projects.

Sales of RECs have taken off, with Whole Foods, FedEx Kinko's, Starbucks, and Patagonia among a host of corporate buyers. Green-e, which certifies about half the sales of RECs in the United States, reports that sales of Green-e certified RECs doubled in 2006. But purchasers say demand appears to be outstripping supply. "The last two years, the REC market has been workable," notes Jay Dietrich, climate stewardship program manager at IBM. "But the market is changing. The supply of RECs is slowly being tapped out."

The certificates present other problems as well. While the not-for-profit Green-e engages an independent public accounting firm to certify, among other things, where a REC comes from and how it is generated, the methodology is far from foolproof. In November, Green-e decertified offsets sold by retailer Clean and Green. And experts say some REC certifiers have less-demanding requirements than Green-e.

Moreover, RECs are expressed in terms of kilowatt hours (one REC equals 1,000 kWh of electricity produced by clean energy sources). A widely accepted standard for translating RECs into a carbon-trading unit does not yet exist. Neither does a true national registry for the certificates, which means the same REC can end up getting sold again and again.

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