<a href="http://gmagazine.com.au/blogs/leon#">The Business of Green</a>

The Business of Green

Money matters in the green world, by Leon Gettler.

Emissions trading scheme headaches

gold coins

Credit: Clipart.com

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The worrying part about the carbon trading market is that it will create a massive bubble that will imitate what happened in the US housing market. And that caused the global financial crisis.

An alarming report from the Friends of the Earth (pdf here) warns that we don’t even know how to regulate this market and that will result in the sort of speculation and market abuse that gave us a global recession.

The report says we need government regulation to rein in the eco-capitalists and carbon cowboys at investment banks. They’ll make a fortune coming up with supposedly "green" products to sell to retail investors, they’ll manage both ends of the cap and trade transactions and they’ll invest heavily in carbon credit providers. All up, it could be disastrous.

I warn about those dangers in my column here. As I say, the big worry about carbon trading is that this market is created by politicians.

"In the end, an emissions trading market has one key problem: unlike other commodities markets, it is politically created and managed so it is vulnerable to vested interests and regulatory capture. And as the subprime meltdown demonstrated, politicians of all persuasions are susceptible. There is no reason to think they will be different with carbon."

Matt Taibbi explains more in Rolling Stone. Taibbi writes:
"Instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an 'environmental plan,' called cap-and-trade."

Carbon trading is expected to make investment banks like Goldman Sachs a lot of money.

But at the same time, a carbon trading regime is supposed to save the planet. So what if people get rich out of it? It’s a point taken up by Nobel Prize winning economist Paul Krugman - one of my heroes – in the New York Times.

Krugman writes: "The solution to climate change must rely to an important extent on market mechanisms — it’s too complex an issue to deal with using command-and-control. That means accepting that some people will make money out of trading — and that yes, sometimes trading will go bad. So? We’ve got a planet at stake; it’s crazy to cut off our future to spite Goldman Sachs’s face."

My only concern with that is that cap-and-trade schemes might be impossible to manage and might not reduce emissions. I look at that issue in my column here.