Wednesday, January 21, 2009

Cap and Trade: Follow the Money!

The carbon financers at the two-day Carbon Forum America conference in San Francisco that wrapped up February 27th, 2008 was "déjà vu all over again.” The promises were reminiscent of those made by the two Macs, Fannie and Freddie, many lenders, mortgage brokers and the Wall Street con artists less than 10 years ago about how their products would put every American into a home of their own. All of this was promised without regard to such details as whether they could afford the payments, had a job, etc.

But that's not too surprising. Carbon financers, traders, investors, or dealers—whatever you want to call them—are middlemen, just like the Wall Street Cons, some bankers and mortgage brokers--- who take a cut for crafting deals that reduce greenhouse gas emissions. Thanks to the Kyoto Protocol, and the EU carbon trading system (ETS), they partook in an estimated $60 billion market last year.

You can imagine why they want the US to hurry along. According to the Congressional Budget Office, visions of a $300 billion to$1 trillion carbon market dance like sugar plums in their heads.
Worldwide market trading in CO2 is estimated to raise several trillion by 2015!

It's easy to feel a bit queasy about carbon financers: There's no question they're in it for the money just like the supposed “free-market” bankers who are currently in line for taxpayer handouts!

If there's no cap and trade policy in the US, companies like EcoSecurities, Evolution, and Climate Change Capital that attended the conference will have a lot less business. But most financiers feel good that making a profit can be aligned with reducing CO2 emissions.

"I like a program that encourages people to do a good thing," says Josh Margolis, co-CEO for
CantorCO2e. "Good public policy makers will use what motivates people—fear and opportunity—to accomplish the social good."

The argument for a cap and trade policy in the US is basic economics—markets (through buyers and sellers trading) will find the cheapest way to limit the world's use of carbon. This is significant because the task of disentangling ourselves from using fossil fuels and finding new ways to power our lives will be a massively expensive task no matter how you slice it.

And make no mistake, the cost will be borne by each of us---the American energy consumer. Considering the magnitude of current credit crisis, made possible by oblique financial instruments (CDO’s, derivatives, etc.), policy makers need to proceed with extreme caution on imposing a Cap and Trade system without understanding it’s economic implications for taxpayers and investors.

I have been a student of business, politics, and government for 40 years and have never forgotten President Eisenhower’s warning about being suspect of the military industrial complex---of the private market place using government for its own benefit without regard to the taxpayer whose resources are ultimately at risk.

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