Monday, in the offices of start-up Evolution Markets, just off Wall Street. The place, to put it kindly, is in disarray. The walls: unpainted sheetrock. A trading desk is in place but the telephones haven't been installed.

Andy Ertel, the president of the start-up, apologises for the chaos and ushers me into an adjacent room. No table. We pull up chairs and face each other. He hopes to be trading by Wednesday. That's hard to believe, given the state of the office, but hey, things move fast these days.

Evolution Markets is the latest entry in the small but growing world of brokers who are trying to do well by springboarding greenhouse-gas (GHG) trading into a global standard business practice. Ertel is tremendously excited by the business opportunity and also, he confesses, terrified. He believes a boom market is in the making, but what if he is wrong?

A growing pack of entrepreneurs see emissions trading as a path to doing well by doing good. Some of these players are in the brokerage business, either in start-ups or as units of larger companies [see Box]. Some are pursuing vertical market opportunities, identifying specific strategies for GHG sequestration. Other players include major corporations with significant GHG exposure who believe the best defense is a good offensive.

Ertel and his entrepreneurial colleagues are betting on an unprecedented phenomenon. Largely independently of command-and-control regulation, multinational corporations (MNCs), non-governmental organisations (NGOs), multi-lateral institutions like the UN Conference on Trade and Development (UNCTAD) and small entrepreneurs are working together to build what appears destined to be a major force in the increasingly interlinked worlds of finance, industry and the environment.

To date, about 100m tonnes of greenhouse gases have been traded worldwide. That's an impressive figure, given the scarily unstructured environment in which the trades have taken place. But that's only the beginning. Dan Dudek, senior economist with Environmental Defense, expects that by 2010 annual GHG trading will be at the 50bn tonne level. That's 500 times more in one year than the current total to date. In dollar terms, that adds up to a $250-$500bn market, if the guesstimate of Carlton Bartels, managing director of environmental brokerage services at Cantor, Fitzgerald, a New York City-based brokerage, is on target. Says Bartels, "If emissions trading is a highway, we're on the entry ramp."

A number of forces are converging to make Ertel's entrepreneurial wager look solid. For one thing, there is an emerging consensus among MNCs that, even if the Kyoto Protocol is not ratified, limits on GHG emissions are headed their way. "Companies are being driven by rational risk-management," says Jack Cogen, president of NatSource, the New York City-based brokerage Ertel left to found Evolution Markets. "They see the hurricane coming at them." Frank Joshua, who until recently headed up the greenhouse gas emissions trading program at UNCTAD, sees things similarly. "Even if the Kyoto Protocol collapses, emissions trading will survive," he says. "We've gotten to the point where trading is inevitable."

More broadly, companies are beginning to understand that the so-called 'New Economy' is not only about the Internet. It is also about succeeding in an environment of constrained natural resources. And scarcity means markets.

The revolution in communication technologies-and, more broadly, the rate of technology change-are additional factors: online exchanges facilitate trading and lower transaction costs. Not only that, but the pace of technology change makes command-and-control regulation seem increasingly absurd. Why mandate the installation of a certain scrubber when that technology will be outdated almost as soon as it has been installed? Innovation becomes even more valuable during times of super-rapid change and emissions trading encourages innovation.

And then there is the zeitgeist, the overarching spirit of the times, which favors the monetisation of just about everything. Enviros holler about this trend, but they are voices in the wilderness. This is the era of markets and God help anything that gets in the way. This creates a beneficial environment for emissions trading. So, ironically, does climate change and there's no sign that will go away soon, either.

All this suggests that the winds are favorable, but much work must be done. An orderly market with clear rules of engagement must be created and that is no easy matter. Accounting and legal standards are required, as are credible auditing and certification procedures. Environmental Defense has made a good start at this by establishing the Environmental Resources Trust, a registry of GHG trades that tracks emissions and documents performance. Says Ben Feldman, director of the organisation's GHG Market Development program: "We want to make the world safe for trading."

Breadth of coverage is another challenge. The sources of greenhouse gas emissions are almost enormously varied. Landfills, cars, factories-even cows-all these and more are significant emitters of GHGs. A trading system will only be as effective as it is inclusive.

Market liquidity is another must. According to Environmental Defense's Dan Dudek, markets in their early stages are characterised by high supply and low demand. "We're in the era of the hand-built Rolls Royce," he says. "That's what's necessary at this stage." As the infrastructure develops, trading will become more automated. Meanwhile, how these Rolls Royces perform is critically important. If a couple of them blow up on the entry ramp, we'll never make it to the emissions-trading highway.

Entrepreneurs are addressing the last two needs-breadth of coverage and liquidity-in particular. "Both multinationals and smaller companies are supporting the process," says Dudek. "They're contributing equally to market development."

A very active big-company organisation is the Global Emissions Consortium (GEMCo), a Vancouver-based group of ten Canadian energy enterprises that collectively account for 20-25 percent of Canada's GHG inventory. The organisation's mission, according to its website, is "to develop investment opportunities" that turn its members' "environmental challenges into potential sources of competitive advantage."

GEMCo is pursuing many initiatives simultaneously. In one project, the consortium will be collecting hydrochlorofluorocarbons (HCFCs) from auto-wreckers in British Columbia and delivering the greenhouse gases for reuse to a major auto manufacturer. In return, GEMCo will get GHG credits.

What is important about this example, GEMCo president Alyden Donnelly stresses, is its replicability. GEMCo isn't trying to corner this or any market. It's trying to create successful examples. Hopefully other companies will follow suit.

GEMCo is also working with the paper industry. In British Columbia, a Georgia-Pacific wallboard plant uses boilers that run on a mix of landfill and pipeline gas. GEMCo has devised a way to run the boilers more efficiently while increasing the percentage of landfill gas in the mix. The approach is saving Georgia-Pacific money, and it also earns GEMCo companies credits for reducing landfill emissions. Best of all, says Donnelly, "I know 200 places where this can be replicated."

GEMCo was on the buy side of an arrangement with Iowa farmers to adopt 'low-till, no-till' farming, an agricultural technique that increases carbon sequestration. Tilling chews up rootstocks and releases them into the air as carbon dioxide. 'Low-till, no-till' keeps this from happening. Carlton Bartels, who heads up the Cantor, Fitzgerald unit that brokered the deal, says: "Farmers like low-till, no-till because it improves long-term financial performance. However, for four to five years, the financials are negative. The GEMCo companies have agreed to help the farmers make the transition."

The arrangement has produced an additional benefit. Previously, American farmers were adamantly opposed to the Kyoto Protocol. They saw it as a drain on resources with no upside. Now they're sniffing a profit opportunity. Naturally, Bartels and Donnelly welcome this shift in the political weather.

Where GEMCO is a 'mile wide and an inch deep,' with projects in many areas, small entrepreneurs in the emerging carbon market are often an 'inch wide and a mile deep.' Such is the case with the Washington, DC-based Global Livestock Group, which specialises in, of all things, cow gas. It's hard not to snicker, but cow emissions are no laughing matter. Ruminants-cattle, buffalo and so on-produce 22 percent of global anthropogenic methane emissions. Of this, 75 percent is provoked by poor feed, which worsens ruminants' digestive systems.

The Global Livestock Group has devised a simple, elegant solution to this somewhat ludicrous problem. First, give the cattle better-quality feed and they produce less gas. This is good for the environment and it also means healthier, wealthier people in the developing nations where low-grade feed is a particular problem. Second, measure emission reductions by equipping the beasts with a collar that measures ambient methane levels. Third, get companies who need GHG credits to underwrite the cost of providing higher-quality feed.

The Global Livestock Group has run successful pilot projects in India, Bangladesh, Nepal and Zimbabwe. It also recently inked a deal with GEMCo member TransAlta for a 30m tonne offset agreement in Uganda.

Entrepreneurial brokers like Andy Ertel at Evolution Markets are focusing on building the 'handmade Rolls Royces' that the current market requires. In many Wall Street markets, brokers are order-takers. Not so in emissions trading, where they are deal-makers and innovators too. Brokers at companies like Evolution Markets, NatSource and Cantor, Fitzgerald are consultants as much as middlemen.

Over time, trading will become more automated and entrepreneurs are gearing up for that. SAIC, a San Diego, California-based research and engineering company, has launched GreenOnline.com as a vertical portal for environmental e-commerce. Among the offerings: an exchange for emissions trading, which was launched in November 1999.

According to GreenOnline.com product manager Walter Alcorn, many emissions-trading exchanges are what he calls "e-commerce light." Brokers set up deals, then funnel the parties into the network. GreenOnline.com, by contrast, is "e-commerce heavy." Says Alcorn: "Through our open architecture, buyers and sellers will be able to negotiate online. We're not operating as consultants, we're offering a technology platform."

GHG emissions trading isn't the only game in town. Azurix, a Houston, Texas-based company that is two-thirds owned by Enron, has launched Water2Water.com, an Internet-based marketplace for buyers and sellers of water and water-related services. Theoretically there are few, if any, constraints on what can be traded. As Richard Sandor, chairman and CEO of the Chicago-based consultancy Environmental Financial Products, points out, someday there could even be a market in endangered species. GHG trading is currently at the center of the storm, but over the long term, look for trading in every manner of environmental entitlement to be the bigger story.

Could anything derail the emissions trading juggernaut? Experts raise a host of possibilities. Regulatory heavy-handedness, too much diplomatic haggling and the refusal to credit business for anticipatory actions are concerns.

Another is cultural resistance. "Some cultures, for instance Moslem ones, don't believe in financial instruments," notes Environmental Defense's Dan Dudek.

Yet another danger is runaway entrepreneurship. At this critical early stage of development, the emissions trading market needs innovation-but it also needs credibility. If a couple of early deals go wrong, for instance by crediting GHG reductions that turn out to be phantom, the entire emissions trading movement would get tarnished. This happened in the early 90s with green marketing, when a handful of companies indulged in dubious campaigns. Environmental marketing got a black eye from which it hasn't yet recovered.

On balance, however, the odds clearly favor the emergence of what Dan Dudek calls "a dynamic, flexible, learning-based machine for churning out emissions reductions." In large measure this is because emissions trading is a subset of an equally compelling and even larger trend.

Environmental Financial Products' Richard Sandor sees the emergence of emissions trading as part of the broader convergence of environmental and financial markets. He points to the recent introduction of the Dow Jones Sustainability Group Index as a related development. Increasingly, financial instruments are being devised to address environmental challenges. "In a new economy with scarce resources, we must apply market principles," he says. "Emissions trading is the single most powerful weapon we have."

Andy Ertel, the president of start-up Evolution Markets, agrees. "By 2010, emissions trading will mean cleaner air in China. It will mean companies around the globe are investing in renewable-energy technologies."

A note of passion enters his voice. "We're trying to save the planet one trade at a time."