A decade ago, the idea of planting trees to compensate for greenhouse gas emissions was all the rage. The notion had intuitive appeal: companies and organizations seeking to offset their carbon emissions would pledge to plant trees, which sequester carbon. But, as always, the devil was in the details. It was difficult to verify that the promised trees actually got planted, and there was no guarantee they wouldn’t be cut down later.

Michael Greenstone, LAB’87, began wondering if there was a better way to offset emissions. In particular, Greenstone—the Milton Friedman Distinguished Service Professor in the Kenneth C. Griffin Department of Economics, the College, and the Harris School of Public Policy—had his eye on government-regulated cap-and-trade carbon markets. Several countries and US states use these systems to establish both a limit and a price on CO2 emissions. The details vary from place to place, but generally, large-scale industrial emitters are required to purchase CO2 permits from a carefully monitored marketplace; the permits can also be bought and sold by other interested parties.

Greenstone saw an opening: “What if you just went into those markets [and] outbid polluters for the right to pollute?” In other words, you could buy a permit and keep it, effectively preventing that metric ton of carbon from ever reaching the atmosphere.

With his friend Andrew Dailey, a cofounder and managing director of MGI Research, Greenstone decided in 2020 to make the long-simmering idea a reality. Together, they recruited two more cofounders—UChicago trustee Donald R. Wilson Jr., AB’88, founder of the trading firm DRW, and Bala Srinivasan, SM’91, PhD’95, DRW’s global head of business development—and dubbed their new nonprofit Climate Vault. The organization works with a variety of institutions, including companies, universities, and other nonprofits, to offset their emissions; these partners make donations to Climate Vault, which uses them to purchase carbon permits from cap-and-trade markets.

In addition to squirreling away permits, Climate Vault is working to incentivize the development of carbon dioxide removal technology. The organization’s eventual goal is to sell its vaulted permits and use the proceeds to fund the permanent removal of an equivalent amount of carbon. In time, as carbon dioxide removal technology gets better and cheaper, selling a one-metric-ton carbon permit may even allow Climate Vault to pay for two metric tons of carbon removal.

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Areas of Focus: Energy Markets
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Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Fossil Fuels
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Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...