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The carbon market blinks — $130b trainwreck slows

Posted By JoNova On January 10, 2010 @ 5:31 am In AGW socio-political,Global Warming | Comments Disabled

For the last five years the carbon market has been doubling year after year. But in 2009, the exponential growth trajectory paused. Point Carbon issued a report this week estimating that the world wide market in carbon trading in 2009 totalled around $136 billion dollars, which is not much higher than the 2008 figure. After years of living in a rapacious bubble, prices are about 60% below the peaks of 2008, carbon traders are starting to peel out into other commodities, and the sails are looking decidedly flat on the Maxi Yacht known as Carbon-Credits Inc.

The size of the market in gigatons of carbon grew nearly 70% over 2008, but the falling prices meant the same amount of money churned through the system and the total dollars were very similar year on year.

How times have  changed. Back in May 2009, emissions traders were feeling confident that a US market for emissions would be approved. Not surprisingly, the low carbon prices and the non-event of Copenhagen mean that carbon traders are becoming frustrated. Some are even expanding into… markets that are based on real commodities like oil, gas, gold and steel. [Reuters]

Political uncertainty has contributed to low carbon prices in the United States. The Carbon Financial Instrument contracts on the Chicago exchange have fallen to about 15 cents per tonne from about $2 early last year. [Reuters]

It probably doesn’t help much that the market is beset with auditing discrepancies, and outright fraud. The top two auditing agencies in the EU market were both suspended in the last year, and Europol discovered that some traders had found a way to collect taxes on behalf of the government and then keep the money for themselves.

In the scam, criminals set up a carbon trading account on a recognized European market. They would then buy credits tax-free on exchanges in countries outside Europe. Those credits are then transferred into the European account, and the fraudsters collect tax on that transaction, but the monies are never paid to any European tax agencies. The bogus trading account is then shut down before tax authorities can collect. [CBC Canada]

The fraud may have cost taxpayers about $7 billion dollars and in some markets amounted to 90% of the volume. No wonder the carbon market has stalled. As I have said before, there is no natural limit on a market that trades on promises, intentions, or motivations. It’s destined to be impossible to police. Despite the advertising, it’s not  free market. If we were truly “free” to buy carbon credits, hardly anyone would spend a cent on an unverifiable permit for a good they can”t use. The carbon market is a fixed market, where people are forced to buy a piece of paper or face being sent to jail, and where the “Commodity” involved is not even a commodity–it’s just a “promise”.

Remember the fastest way to create a level playing field in a public discussion of global warming is either to ask for evidence, or to just say six words: The banks want us to trade carbon. Now the $126 billion dollar figure for 2008 can be updated to $136 billion for 2009. (But note that the former figure was a World Bank figure, and the latter comes from PointCarbon, and each year they disagree by a few billion dollars).

I covered the auditing discrepancies in September: The carbon casino gets caught with it’s pants down.

Articles Tagged:  Climate Money

Thanks to Scott for the pointer on the figures for 2009 trading.

Thanks too the whistleblower or hacker who gave us ClimateGate. We are indebted :-)

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