The result is an overall emissions decline with the lowest overall economic impact, at least in theory, though some economists and other experts argue that such trade in greenhouse gases amounts to "voodoo economics"—the benefits of the trading never trickle down to the actual pollution control.
But the concept has worked for emissions of other air pollutants, such as the sulfur dioxide from coal-fired power plants behind acid rain. The amount of sulfur dioxide falling on northeastern forests from Midwestern power plants has declined since the 1990s when that market was introduced. The acid rain cap-and-trade market "worked cheaper and faster than the naysayers predicted," Hochschild noted. With the total number of such allowances limited by the government, a free resource—the air—suddenly became scarce. With scarcity comes value and value means money.
Today brokers at carbon desks in London, Beijing, Tokyo and New York drum up business in Indonesia, Russia, Brazil and even the Democratic Republic of Congo. Many expect this worldwide emissions market to be worth trillions of dollars some day. Much of today's value is driven by the Kyoto Protocol, which set up a global market for greenhouse gas emissions but is set to expire in 2012, with no prospects of successor treaty in sight.
And that brings up the fragility of today's emissions markets.
One domestic cap-and-trade market, organized by the Chicago Climate Exchange, is voluntary. Launched in 2003, it relies on companies such as Cargill, DuPont, Intel, Ford and Monsanto to make legally binding but voluntary commitments to meet emissions targets either by reducing emissions from their factories or by purchasing permits from other members of the exchange who have exceeded their targets.
That system is now in doubt, Jeff Sprecher, chief executive of the CCX's new parent company, Intercontinental Exchange, told investors during an August conference call. "It remains to be seen in an uncertain U.S. regulatory environment whether companies are going to want to continue to walk down their carbon footprint and whether they're going to continue to get credit for it from Congress and how the Environmental Protection Agency ... will give them credit for the work they're voluntarily doing."
The U.S. market, Sprecher added, is a "loss-making business as it exists today," which may be why ICE is reputed to be laying off much of the staff who run the CCX business.
But Intercontinental Exchange also runs Europe's main carbon emissions trading platforms, and that's a growth business even with no prospects of a global deal to cap emissions on the horizon, Sprecher said.
On just one day in mid-May, 6.5 million metric tons of CO2 allowances traded on the European Carbon Exchange - or more than $150 million worth at a price of nearly EU$16 per ton just for the countries in the European Union; it has grown 26 percent for the year through July, according to the Intercontinental Exchange.
The E.U. is not the only region to have such a trade: Regional carbon markets have proliferated, ranging from an 11-state market in the northeastern United States known as the Regional Greenhouse Gas Initiative, or RGGI (pronounced "Reggie" by aficionados), to the would-be global market for avoiding greenhouse gas emissions as the developing world develops under the terms of the Kyoto Protocol, the so-called CDM, or Clean Development Mechanism (which lacks a cutely pronounced acronym, among other problems).
Lost? Hochschild, sitting now, says you're not alone. "There are more acronyms in this business than anything else."
Thanks to U.S. intransigence, there is an international flavor to the carbon market. And that means Hochschild's day starts early, with phone calls to Europe or Asia, segueing as the day progresses into activity in Brazil or the United States. Education is how carbon brokers drum up business. "They've never heard of carbon offsets or cap and trade, or if they have, they've heard it's a tax," Hochschild said of his U.S. prospects. The hand-holding starts with educating potential sellers and buyers. "Seventy percent is free consulting and 30 percent is actual deal flow," he adds. "But without the consulting, no flow."
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5 Comments
Add CommentIf you don't accept that people living as they have to is not per se pollution then the whole lie kind of falls apart.
Reply | Report Abuse | Link to thisCarbon trading is just as unethical as was the market for indulgences which caused protestantism to occur, because carbon trading gives companies the right to pollute.
Reply | Report Abuse | Link to thisThe only reasonable incentive to clean up the atmosphere is Carbon Tax. This 'Polluter Payer' approach cleaned up many of Europes pollution problems, as the taxes were redistributed as grants for clean technology.
Just imagine your home with no flushing toilets and no garbage collection. Imagine also no sewerage treatment upstream of your water supply and your garbage being just dumped upstream in your local river. You would soon complain that your leaders were treating you as a third world inhabitant.
Reply | Report Abuse | Link to thisYet your leaders are behaving in the same way as third world politicians, by collecting no taxes to deal with pollution, meaning products are not being charged for at a price which is adequate for environmental hygiene.
Yes people are wallowing in their own atmospheric filth through lack of political hygiene, and exploiting other countries ressources in an unsustainable way.
The world needs new leaders, new politics and a new economic system to replace the present one which is slowly rotting away because of its failure to recognise the real problems the planet is facing.
This is just an effort to profit in the environmental reform efforts. Carbon Credits (guilt tax) is a bucket of bull. Taxes are levied for one purpose: To raise funds. Not for political purposes, not for incentives, not for housebuilding, not for education incentives, etc.
Reply | Report Abuse | Link to thisWe need to look at revamping the whole tax code instead of how Wall Street can manage or benefit from the Global War on Climate Change.
I just don't understand that IF Global Warming is a settled science as proponents claim, WHY WOULD THEY TRADE POLLUTION FROM ONE COUNTRY TO ANOTHER. THAT DOES NOTHING TO REDUCE THE EFFECTS OF THE POLLUTION. Who is making money in this new "exchange?"
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