At least when there was a housing bubble, there were actual houses involved. The next bubble could ostensibly be a carbon dioxide bubble; the newly-created, artificial market for a clear, odorless gas is growing at rapid rates. According to a new article from Mark Shapiro in Harper’s:
Carbon trading is now the fastest-growing commodities market on earth. Since 2005, when major greenhouse-gas polluters among the Kyoto signatories were issued caps on their emissions and permitted to buy credits to meet those caps, there have been more than $300 billion worth of carbon transactions.
Major financial institutions such as Goldman Sachs, Barclays, and Citibank now host carbon trading desks in London; traders who once speculated on oil and gas are betting on the most insidious side effects of our fossil fuel–based economy. Over the next decade, if President Obama and other advocates can institute a cap-and-trade system in the United States, the demand for carbon credits could explode into a $2 to $3 trillion market, according to the market-analysis firm Point Carbon.”
The Kyoto Protocol allows companies to purchase offsets to reduce greenhouse gas emissions. Offsets allow carbon-emitting businesses to pay others to reduce their greenhouse gas emissions. Multinational firms hire carbon developers and carbon assessors to seek out carbon reduction projects all over the world. Businesses that have nothing to do with energy issues are diversifying. Shapiro, for instance, highlights one firm that primarily focused on product inspection, but once the opportunity arose to profit from carbon transactions the business took full advantage. These companies go around and evaluate the number of tons of carbon dioxide the project would eliminate from the atmosphere. One composting project in Brazil would reduce the equivalent of 67,000 tons of CO2 by turning food waste from grocery stores into organic fertilizer. The project is then subject to United Nations approval. If approved, at a carbon trading price of $22 a ton, the project would collect nearly $1.5 million.
Projects like this exist all over the world and are highly susceptible to fraud. A company could build a coal plant and say they’ve created offsets because they were going to build a dirtier one or claim that they were going to cut trees down when in fact they weren’t in the first place. Bryan Leyland, chairman of the economic panel of the New Zealand Climate Science Coalition, said, “I first heard about carbon trading at a conference more than 10 years ago. I got up and said ‘If I was the financial adviser to the Mafia, I would advise them to get into carbon trading.’ Nothing that has happened since then changes my opinion – rather the reverse.”
The failures to pass cap and trade legislation in the United States and to reach CO2 reduction concessions at the climate accord in Copenhagen may pop this bubble sooner than expected. According to the UK’s Guardian, “Banks and investors are pulling out of the carbon market after the failure to make progress at Copenhagen on reaching new emissions targets after 2012. Carbon financiers have already begun leaving banks in London because of the lack of activity and the drop-off in investment demand. The Guardian has been told that backers have this month pulled out of a large planned clean-energy project in the developing world because of the expected fall in emissions credits after 2012.”
Given the recent scientific setbacks, the long-existing scientific dissent, and the insignificant effects these carbon reduction schemes would have on the earth’s temperature, it’s better to shut this plan of trading carbon emissions down before it evolves into multi-trillion dollar market that will likely have the bottom drop out of it just like the real estate market.