The carbon-trading shell game

In a recent Harper's Magazine article "Conning the Climate: Inside the Carbon-Trading Shellgame" Mark Schapiro provides a comprehensive look into the intricacies, vagaries and risks associated with the global carbon emissions market which is now at $300+ billion and growing fast. Jeremy Warner of the Telegraph writes an overview and comments:

According to Mr Schapiro, carbon trading is now the fastest growing commodities market on earth. Since Kyoto signatories bought in to the cap and trade concept in 2005, there have been more than $300bn carbon transactions, prompting several investment banks, including Goldman Sachs and Barclays, to set up their own carbon trading desks. But that’s just the start. If President Obama and his supporters can institute a cap-and-trade system in the United States – and that’s a big if for this increasingly marooned presidency – demand could explode into a $2 to $3 trillion market.

And here’s the great thing about it. Unlike traditional commodities markets, which will eventually involve delivery to someone in physical form, the carbon market is based on lack of delivery of an invisible substance to no-one. Since the market revolves around creating carbon credits, or finding carbon reduction projects whose benefits can then be sold to those with a surplus of emissions, it is entirely intangible.

... The whole thing, though well intentioned, looks wide open to abuse and scams. Mr Schapiro’s account of the carbon trading market is obviously a sceptical one, and no doubt there are others that take a less cynical view. But I wonder what all the wide eyed climate change campaigners are going to say when the first scandals begin to break, still more what they’ll make of it when the whole thing turns out to be another giant asset bubble – if indeed the non production of carbon can be described as an asset.

The above is via FOS who note another potentially catastrophic problem:

The U.N. has authorized 26 firms to participate in the lucrative business of validating these promises world-wide. Due to irregularities the U.N. temporarily suspended the two largest validators - Swiss-based SGS and the Norwegian DNV. However, any questionable carbon credits are never revoked, because that could destroy the market. [Hmm. The U.N., of oil-for-food fraud infamy, overseeing validation of trading in the non-delivery of an invisible gas? What could possibly go wrong?]