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Carbon market chaos strikes again

Carbon credit, CER, EUA

What a surprise: The free-market-that-is-not-free leaps from one scandal to the next. In a real free market where salesmen sell something real, and buyers buy something they want, people can’t get away with cheating, or not for long.

If someone sold you a bulk carrier of coal, and it turned up empty, you’d notice.

But, if someone sold you two million Certified Emissions Reductions (CERs) that were worthless, how could you tell? They are “certified”. They are real “certificates”, and as long as you believe they exist, perhaps they do? Welcome to the world of fiat currencies, where confidence doesn’t just make or break a market; it’s its sole underwriter.

Times Online reports on the Chaos in the carbon market over recycled permits.

The Hungarian Government, the cheeky sods, figured out that if CERs were issued by the UN (and not the EU), they could use them to write off the obligations of some Hungarian companies, and then, apparently, sell them again, so others could use them to write off their obligations, too.

It’s like reselling a three-course meal after it’s been eaten.

When confronted, the Hungarian Government claimed the used CERs were only sold to non-European investors. (So that makes it alright then?  Someone outside Europe wasted money?)

Except that, as things do in a “free” market, the used CERs turned up in the EU market anyway, and eventually someone noticed.

“BlueNext and Nord Pool, the French and Nordic exchanges, suspended trading in certificates of emission reduction (CERs) when it emerged that some had been illegally reused.”

The value of the CERs promptly fell from €12 per tonne of carbon to less than €1.

“The European commission will suspend the surrendering of allowances, CERs and ERUs, it said today.”

Things are tough for the fledgeling carbon currency market. First the individual governments issued too many permits, creating a glut and crash. Then the top two auditors of the European system were busted, one after the other, and suspended for irregularities. Then Europol discovered that some traders had found a way to collect taxes on behalf of the government, and keep the money for themselves. The fraud may have cost taxpayers about seven billion dollars, and in some markets amounted to 90% of the volume. (See CBC Canada.)

The unfixable unfree market

Hopeful souls imagine that they can improve the regulations or auditing, or close the loopholes, but that’s just the problem: In a fake market based on an unmeasurable, unverifiable thing like the motivations of  Third World businessmen, the market itself is the loophole. The only way to close the loophole is to close the market.

Hat tip to Colin in the UK.

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