Carbon-Trading Exchange Opens in New York

A new business is opening Monday in New York: a carbon trading exchange. Carbon trading is mostly a European phenomenon — companies buy and sell the right to emit carbon dioxide into the air. Until now, most of those trades happened in London.

The basic idea is similar to the core principles of capitalism. Carbon trading seeks to harness the financial self-interest of companies and investors. They just want to make money, but a side effect is that they may lower pollution. Reduce your carbon emissions, and you can make some cash by selling the right to pollute to some other company.

Carbon trading does not exist in the U.S. — at least not in any large and formal way. But in Europe, it's big business with big money at stake.

The New Green Exchange — a part of the New York Mercantile Exchange — launches Monday with an offering of futures contracts tied to the cost of pollution in Europe. The Green Exchange will be in New York, but the polluting will happen across the Atlantic Ocean.

Carbon trading futures are a complicated and technical instrument. But the idea is relatively simple. Just like trading grain or oil or Microsoft stock, investors can make — or lose — money by placing bets on how expensive it will be to pollute. Large polluting factories can effectively game the system by polluting less.