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Cut out the carbon middleman

June 26, 2009

The opposition by the Republicans to the idea of carbon trading is a bit baffling, given that it is a classic Wall Street-driven solution for dealing with a serious problem.

Sure, carbon trading, which is the centerpiece of the Obama administration-backed American Clean Energy and Security Act, would carry a cost for consumers and companies that emit too much in greenhouse gases. But the economic impact of the bill’s so-called cap-and-trade scheme would be modest — costing the average household $175 a year in added expenses, according to the Congressional Budget Office.

What’s actually more baffling is President Obama’s infatuation with this trading scheme, which will benefit the global environment, but will also fatten the wallets of Wall Street traders. A simple tax on polluters and carbon producers would get the job done without the kind of wealth transfer to the gilded class that Republicans generally support.

It’s easy to see why Wall Street, which has been waiting for carbon trading to ignite in the United States, favors the measure.

The bill would impose a hard cap on carbon emissions for all U.S. companies. But it would permit businesses that produce less carbon emissions to sell “credits” to companies that exceed the cap — hence the name cap-and-trade. The legislation calls for the carbon credits to be traded on regulated exchanges and that, of course, is where Wall Street comes in.

Wall Street trading desks will make money from handling both ends of the cap-and-trade transactions. Yet it’s not too hard to imagine that there are some Wall Street bankers already dreaming up some newfangled “green-friendly” investment product that will capitalize on this trade, which can then be peddled to retail investors.

Cap-and-trade just might be the shot in the arm that the ailing structured finance market needs. Is that the kind of “green jobs” we really want?

Another obvious winner from the passage of a cap-and-trade bill will be the Chicago Climate Exchange, which has struggled to find a market since it opened for business in 2003. The Green Exchange, a soon-to-launch trading platform being built by CME Group’s NYMEX division also should get at jolt.

The hedge fund industry is looking to catch the green wave, as well. Da Vinci Invest Ltd. of Switzerland, for instance, recently began raising money for its carbon-trading Green Falcon Fund.

But a so-called carbon tax on companies based on the level of greenhouse gases their products produce would cut out the Wall Street middleman altogether. A carbon tax also would make greenhouse gas pariahs, like gas-guzzling cars, cost a lot more. And that’s something that would immediately impact consumer behavior.

Selling a carbon tax, however, would take political courage because of that dreaded three-letter word. And sadly that kind of courage is in short supply in Washington.

Update: The House narrowly passed the Obama-backed bill with the cap and trade provision by a seven-vote margin. Passing the bill was better than defeating it and having nothing on the table–the option seemingly preferred by the Republicans. It’s wishful thinking that in the Senate the cap and trade could be converted into a straight carbon tax, but you never know.

Comments

Senators: We strongly urge you to vote “NO” to theCap & Trade Climate and Energy Bill.

The final Climate and Energy Bill passed the House so diluted with special interest bribes that It defeats what was represented to be its original objectives. Have you read the over 1,000 pages of the bill on which you are asked to sign? Cap & Trade is a prime example of the legislation which has been rushed through from the inception of the economic downtown with dire consequences to your constituents whom you are elected to represent.

While avoiding the underlying question, the proposed legislation would have a trivial effect on global warming while imposing substantial costs to the American householders. While avoiding the underlying question, the proposed legislation would have a trivial effect on global warming while imposing substantial costs to the American householders. The Congressional Budget Office estimates that its resulting increase in consumer required to achieve l5% CO2 reduction will raise the cost of living initially by $1600 per year per household with future costs significantly higher. Higher prices will relate to every manufactured goods, companies moving offshore, resulting in fewer jobs and higher unemployment WITH LITTLE EFFECT ON GLOBAL WARMING.

What effects does Cab & Trade have?

1. It interferes with positive solutions to Global Warming/ Solving global warming means solving how to keep most remaining fossel fuels in the ground.

2. It squanders resources and ingenuity on the wrong things. t squanders resources and ingenuity on the wrong things. S. Korea, the firm of Rhodia has profited 30% more selling carbon credits with NO GAINS.

3. It requires knowledge we don’t have and interferes with positive solutions to Global Warming.. Progressive California calls carbon training a “charade to continue business as usual.” – more construction of new fossel fuel fired power plants instead of focusing on building a green economy to provide new jobs for power communities.

4. It is based on faith not experience. Carbon trading – the centerpiece of the Kyoto Protocol and Europe’s response to climate change – the EU Emissions Trading Scheme has FAILED.

5. Cap & Trade is Antidemocratic.

WHO BENEFITS? Who Benefits? Big fossel fuel using companies; hedge funds, commodities traders, banks and law firms, i.e. ENRON, WorldCom, LTCM and the subprime mortgage market.

WHO LOSES? Once again – the American people. Cap and Trade is likely to be the biggest tax in American history.

Fred and Renee DeKlotz

 

Fred,

You are right on…hedge funds and Goldman will benefit from all of this. But look at the companies you mentioned Enron, WorldCOm they went broke. These trading vehicles derivatives brought us down in the first place and the administration is pushing more of this nonsense.

Derivatives Will Bring Goldman Down

 

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