Last February I speculated: Carbon Credit Trading, the next financial bubble to burst? That has now come to pass for U.S. markets with the collapse of the Chicago Climate Exchange.
Carbon credits allow industries to emit carbon dioxide above any cap & trade regulations imposed. The carbon market exists as a commodity only through the decisions of politicians and bureaucrats, who determine both the demand, by setting emissions limits, and the supply, by establishing criteria for offsets. It was a bubble waiting to burst. Unlike traditional commodities, which at sometime during the course of their market exchange must be delivered to someone in physical form, the carbon market is based on the lack of delivery of an invisible substance to no one.
Since 2005, when carbon trading was one of the fastest growing commodities, there was speculation that if the Obama administration passed cap & trade legislation, the market would grow to $3 trillion.
According to Businessweek, “The Congressional Budget Office estimated that under a cap-and-trade plan, the U.S. market for the permits, which companies would need in order to emit CO2, could be worth as much as $300 billion by 2020.”
“The Chicago Climate Exchange (CCS aka CCX), once billed as a Nasdaq for CO2, saw carbon prices drop to a nickel per ton before announcing on Nov. 17 that it would cease operations at the end of the year.”
In the Spring of 2008, carbon credits were selling for about $7.50 per ton.
“Some 450 companies, including DuPont, Honeywell, and several utilities, signed legally binding contracts to reduce their emissions. Those who succeeded in cutting CO2 could sell their credits to others that were having a harder time complying with CCS emission targets.”
“Bloomberg New Energy Finance reported on Oct. 1 on the “collapse” of trading in another U.S. market, the Regional Greenhouse Gas Initiative, a consortium of ten Northeastern states that joined together to cap and trade greenhouse gas emissions from power plants. The RGGI’s stated goal: cutting utility emissions by 10 percent by 2018.”
The Chicago Climate Exchange was sold earlier this year for $600 million to the New York Stock Exchange-listed Intercontinental Exchange, an electronic futures and derivatives platform based in Atlanta and London. Oops.
Earlier this year, Australia dumped its plans for a carbon trading market.
Unlike the voluntary U.S. market, the European Union market is alive and growing, due to mandatory carbon caps of the Kyoto Protocol (the U.S. never signed the protocol), but that market has been racked by fraud. The Kyoto Protocol expires in 2012. If some new agreement is not reached, the European market will probably collapse also.
That’s why the carbon trading lobby is at the Cancun climate conference desperately trying to get an accord. According to the London Telegraph: “None of the lobbying has been more telling than a statement issued by 259 investment organizations, controlling ‘collective assets totaling over $15 trillion’ – including major banks, insurance companies and pension funds. These are the bodies calling most stridently for ‘government action on climate change’, because they are the ones who hope to make vast sums of money out of it. They are desperate for a treaty of the type they failed to get at Copenhagen – even more so since the collapse of the US cap and trade bill – because they see their chance of turning global warming into the most lucrative fruit machine in history dwindling by the month.”