Friday, August 14, 2009

Barbarians at The Turbine

By Dave Rochlin - Originally posted on

In a recent column in Rolling Stone, Matt Taibbi described cap and trade as "a groundbreaking new commodities bubble, disguised as an environmental plan" and further asserts that it will "allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax collection scheme." A pretty scary critique.

Now I should start with the caveat that Taibbi is a somewhat opinionated and controversial figure, prone to hyperbole. He once described Thomas Friedman (NY Times writer and author of "The World is Hot, Flat and Crowded") as someone who "flies around the world, eats pricey lunches with other rich people and draws conclusions about the future of humanity by looking out his hotel window and counting the Applebee's signs." He called Goldman Sachs "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money" and he also penned an infamous piece called "The 52 Funniest Things About The Upcoming Death of The Pope."

But for me, the Enron-induced market manipulation of the energy markets that nearly bankrupted California still stings, as does the more recent mortgage backed securities fiasco that may end up bankrupting our country (thanks to the TARP, housing bubble, and stimulus packages that it has spawned). While carbon prices should drive us to demand greater energy efficiency and use less energy, the real underlying purposes of carbon credits are to fund ecosystem services (such as vibrant forests) and to finance the cost of permanent changes to the world's energy production and consumption infrastructure. A poorly designed cap and trade scheme could lead to market manipulation and speculation that transfers most of the money to sophisticated financial firms and market intermediaries, rather than groups that actually do the projects. A carbon price "spike" could easily lead to $10 of paper profits for every $1 that actually funds firms making a difference.

We set up ClimatePath so that money goes to a nonprofit that permanently retires the resale or speculation. Many of our mission based project partners also insist that credit transaction lead to retirement, not resale. We avoid treating carbon as a commodity, by linking money spent to the underlying project work. These aren't the only answers, and I do believe that market making firms are needed to make cap and trade work. But it is important that the final cap and trade bill contains strong provisions and penalties to prevent a speculative bubble. The language is there now, but as Mother Jones reports "regulation of carbon markets will probably be swept up in broader financial reforms that are the subject of intense lobbying and political pressure. It's too soon to take for granted that cap and trade will contain rules that go far enough to prevent speculation and fraud."

If you write rules for Wall Street, they follow them. If you leave loopholes, they exploit them. In the end, if your utility ends up paying $50 a ton while they transition away from coal, while the renewables supplier, forest preservation project, or conservation project receives only $10, then we have legislated the massive wealth transfer that Taibbi fears.

Photo copyright artemuestra at (CC License)

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