Carbon trading may be the next sub-prime crisis
A Friends of the Earth report released this week calls carbon trading the "next sub-prime crisis." Professor Steve Rayner wrote the foreword to the report, which he called, "an act of genuine courage against the backdrop of 'climate correctness.'"
The report indicates that plans to expand carbon markets at UN climate talks in Copenhagen this December could trigger a second ‘sub-prime’ style financial collapse and fail to protect the world from global warming catastrophe. The report, entitled ‘A Dangerous Obsession’,focuses on the buying and selling of a new artificial commodity - the right to emit carbon dioxide - which the UK and other governments of developed countries want to see expanded into a massive worldwide market.
The trade in carbon permits and credits, mainly based in Europe, was worth $126 billion in 2008 and is predicted to balloon to $3.1 trillion by 2020 if a global carbon market takes off. But the majority of the trade is carried out not between polluting industries and factories covered by carbon trading schemes, but by banks and investors who profit from speculation on the carbon markets - packaging carbon credits into increasingly complex financial products similar to the ‘shadow finance’ around sub-prime mortgages which triggered the recent economic crash. This risks the development of sub-prime carbon and the possibility of an eventual collapse in confidence in the market, with catastrophic consequences for the global economy and also for our prospects of avoiding runaway climate change.
In his foreword, Rayner wrote, "The authors of this report have done a masterful job of drawing together a highly dispersed literature representing more than a decade of critical perspectives on carbon trading. This critique is based on the inability of carbon markets to achieve greenhouse gas reductions on the scale required to avert highly disruptive temperature increases by mid-century. The report catalogues the repeated failure of global and regional carbon trading to deliver in its own terms as expressed in the promises of its advocates. The authors decisively reject the argument that the disappointing record of attempts to construct carbon markets is due to “teething problems” or because we have not tried hard enough. Rather, they demonstrate that the carbon trading architecture is fundamentally unfit for purpose and cannot possibly deliver the stabilisation of atmospheric greenhouse gas concentrations that the scientific community is calling for in the time frame that matters. Far from proving to be an economically efficient instrument, carbon trading and offsetting have been beset by inefficiency and, in places, corruption and are set to become the next subprime crisis. While various voices in academia and the environmental movement have been expressing these views over the past decade, they have largely been ignored, or even actively muffled, by those who have sunk their political capital into the carbon trading architecture. Indeed, support for carbon trading seems to have become a litmus test of “climate correctness.” Against this background, publication of this report is an act of genuine courage on the part of Friends of the Earth. It is earnestly to be hoped that its voice will be heard loud and clear at Copenhagen and beyond."
Download the full report from Friends of the Earth.