Topic: Cap and Trade
Today, listening to NPR was really enlightening. Terry Gross was talking to Mark Schapiro about Cap and Trade and the Carbon economy. The work done by Mark is incredible. Basically, Cap and Trade is a program that has two parts - set the emission caps and trade the over the cap emissions. The system is amazingly speculative and according to this documentary, $150 billion is involved per year. So, here is the run down.
First the demand side:
Lets imagine a utility company being regulated in Europe has a carbon emission limit of 100 million tonnes. However, with the technology investments in place, they can only come to 120 million tonnes. So, the company will need to buy 20 million tonnes to satisfy the 100 million tonnes cap. The deal is that if you create it, someone else offsets it. For an airline, a DC-10 may be highly inefficient but they want to use it as it is paid for. The emissions for this plane may be twice that of a Boeing and when, in total, they exceed for a certain year, then the company has to go to commodities market to buy it.
Then the Supply side:
There are three ways for the company to offset the extra pollution -
This is the most interesting part of the trade. US is a non-signatory to the Cap and Trade agreement. About 37 countries included in the Kyoto protocol signed it. So, guess where the business of carbon credits is centered - London. Most big investment banks (the remaining ones!) have set up a shop there. They deal in carbon credits. They buy the carbon credits from across the globe and create bundles and sell them to the companies which exceeded their cap. They take deep cuts in the money and it keeps their fat wallets growing.
The Moral Dilemma:
There are several very disturbing things in this system:
It almost seems like a fictitious market in existence. A bubble waiting to burst! Mr. Bernake, will u be there?
Newer | Latest | Older