Unfortunately, the verifiers don't always verify: the United Nations has suspended both DNV and SGS for periods of three months in the past few years after verifiers of the verifiers found that they didn't have the technical skills to appropriately assess various projects. Nor is the problem confined to the private sector; the government of Hungary explicitly sold carbon credits to Japan that had already been used to offset domestic emissions—in effect, double counting the same theoretical emission reductions. Partially as a result, the U.S. Government Accountability Office disparaged offsets in a recent report, calling into question not only their efficacy but also their cheapness (their primary selling point).
After all, greenhouse gas emissions continue to rise—concentrations in the atmosphere creep up by roughly 2 parts-per-million per year. And an analysis published in Proceedings of the National Academy of Sciences suggests that any decline in emissions in Europe has simply been outsourced to China. Firms that make HFC-23 have been overstating their emissions, according to non-governmental watchdog group CDM Watch, in order to qualify for even more money for bogus emission reductions. Some experts argue that countries are doing the same thing, allowing destructive practices to go forward now in order to set a high level of emissions that it will be easy to profit from. An analysis by David Victor at Stanford University estimates that as much as two-thirds of the emission reductions registered under the CDM were so-called "fake tons," or not reductions at all.
In this market, brokers do not have to worry about the regulations of the Securities and Exchange Commission, or the commodity and futures oversight boards. Outright fraud has plagued emissions markets, whether it's Anne Sholtz building a Ponzi scheme out of smog allowances in Los Angeles or European cheats charging extra for carbon allowances under the guise of collecting a tax and then disappearing with the proceeds. So far only voluntary commitments and a code of ethics drawn up by the Energy Brokers Association keep players honest—though the new financial reform regulations may change that.
"It's not a bunch of Wall Street traders putting together a con game," Hochschild countered. "This is real companies making real reductions. If there is an appropriate price point, people are going to be incented to produce carbon offsets, which will reduce carbon emissions." Hochschild thinks that "appropriate price" is roughly $20 to $30 per metric ton of carbon dioxide - or roughly twice what carbon dioxide trades for in the European market. "It needs to be high enough to effect change and not affect the economy," Hochschild said. "Is an 8 percent increase in electricity bills worth getting off foreign oil, solving global warming adding jobs and creating a new economy? I would argue that's a no-brainer."
"This is the most efficient way of resolving climate change, not just a tax and not just technology because there's no guarantee emissions go down," Hochschild continued. "It should happen in the next couple of years." Of course, that's what people have been saying since at least 1992.
"There is an interesting story to be told looking back through the 20th century at the drivers of wealth creation," wrote Richard Sandor, founder of the Chicago Climate Exchange, a voluntary trading regime for carbon dioxide, in the October issue of Environmental Finance, the trade magazine of emissions markets. "In the 1990s, it was the commoditization of information. Looking forward, I think the 21st century will be driven by the commoditization of the two most important resources on the planet: Air and water." Nevertheless, Sandor cashed out of at least the air commodity business this spring, selling CCX to IntercontinentalExchange for $600 million.