Monday, January 11, 2010

Wall Street and Governments Love Carbon Credits--Don't You?

Simulacrum, complexity & cap-and-trade: anatomy of a global scam.

Wall Street and central states both love the sales and trading of carbon credits. Correspondent Alex S. insightfully titled his recent email on the subjectSimulacrum, complexity & cap-and-trade:

Charles, I came across a brilliant critique of cap-n-trade in The Independent:

Leaders of the rich world are enacting a giant fraud Corporate lobbyists can pressure or bribe governments to rig the system in their favour

Most of the tricks centre around a quirk in the system: a rich country can "cut" its emissions without actually releasing fewer greenhouse gases. How? It can simply pay a poor country to emit less than it otherwise would have. In theory it sounds okay: we all have the same atmosphere, so who cares where the cuts come from?

But a system where emissions cuts can be sold among countries introduces extreme complexity into the system. It quickly (and deliberately) becomes so technical that nobody can follow it – no concerned citizen, no journalist, and barely even full-time environmental groups. You can see if your government is building more coal power stations, or airports, or motorways. You can't see if the cuts they have "bought" halfway round the world are happening – especially when they are based on projections of increases that would have happened, in theory, if your government hadn't stumped up the cash.

A study by the University of Stanford found that most of the projects that are being funded as "cuts" either don't exist, don't work, or would have happened anyway. Yet this isn't a small side-dish to the deal: it's the main course. For example, under proposals from the US, the country with by far the highest per capita emissions in the world wouldn't need to cut its own gas by a single exhaust pipe until 2026, insisting it'll simply pay for these shadow-projects instead.

It gets worse still. A highly complex system operating in the dark is a gift to corporate lobbyists, who can pressure or bribe governments into rigging the system in their favour, rather than the atmosphere's. It's worth going through some of the scams that are bleeding the system of any meaning. They may sound dull or technical, but they are life or death to countries like Leah's.

Alex made these additional comments:

James Hansen has proposed an intriguing fee-and-dividend approach to encourage the move away fossil fuels. He intends for it to be revenue neutral with all fees collected to be returned directly to citizens. He contrasts it with cap-n-trade in his new book Storms of My Grandchildren. The critical passage can be found in this excerpt:How to Solve the Climate Problem

His approach has a lot of merit in my opinion.

Thank you, Alex. Here is Hansen's book: Storms of My Grandchildren: The Truth About the Coming Climate Catastrophe and Our Last Chance to Save Humanity

BusinessWeek recently ran a story which explained why the governments of countries such as China love carbon credits:

China: Climate Change or Hot Air? The mainland earns billions in carbon-offset sales. But by taking credit for projects that would have been built anyway, it may not be playing by the rules

Corporate and government buyers from industrialized countries pay for the credits as a way of complying with the Kyoto climate-change rules. The funds generated are supposed to encourage additional green-energy projects without forcing owners of older factories and power plants to close down their facilities or undertake expensive renovations. Credits sold under the Kyoto pact generated nearly $7 billion worldwide last year. Beijing has collected almost two-thirds of the total carbon revenue flow since 2002.

Unfortunately, wherever they have been used, carbon credits have been subject to manipulation. On Dec. 4 the U.N. committee that oversees the international credit trade refused to approve 10 Chinese wind farms, including the Harbin complex. The U.N.'s concern is that the Chinese projects would have been built even without the proceeds from credits.

If that's correct, the sale of credits would not stimulate production of any additional clean energy. Credit purchasers would receive empty environmental bragging rights, and the Chinese developers would obtain an undeserved windfall. "This is 21st century climate-policy snake oil," says Michael Dorsey, a professor of environmental studies at Dartmouth College.

Our own government is planning to profit from the scam as well. Buried at the end of a long account of the Federal Budget 2010 comes this footnote:

The budget proposes to support renewable energy development with a 10-year investment of US $15 billion per year, generated from the sale of greenhouse gas (GHG) emissions credits. Under the proposed cap-and-trade program, all GHG emissions credits would be auctioned off, generating an estimated $78.7 billion in additional revenue in FY 2012, steadily increasing to $83 billion by FY 2019.

So the scam benefits three players: those who sell bogus emissions credits and carbon credits, those who receive billions of dollars in credits for projects they would have completed anyway, and Wall Street, which will assuredly set up a "carbon trading exchange" for the slicing, dicing, tranching and securitization of carbon and emission credits.

Wall Street really doesn't care what the "paper" represents--let it be pork bellies, gasoline, mortgages, or carbon credits; the real money will be made in the transaction fees and the "risk management" sold against "risky" carbon credits.

Patrick McCully, executive director of International Rivers, summed it up nicely in a quote published in the San Francisco Chronicle:

It's pretty much a scam. We need real innovation here and new technology instead of allowing companies to buy these fictional certificates that mean no more than the bytes in someone's computer.

My own view can be summarized thusly: when the market for any tradable good exceeds the value of the total goods, then Wall Street is the primary beneficiary of the market.

If the MSM is correct in their breathless reporting of fabulous new drilling technologies, then the planet will have plenty of fossil fuels for a hundred years or more--no worries, mate, buy your third vehicle straight-away!

If, on the other hand, the MSM is engaging in its usual propaganda for the Power Elites, then the planet will start experiencing a gap between global supply of oil/natural gas and global demand, a.k.a. Peak Oil.

At this point, the human beings on the planet will have a few decades at best to finance and construct a $100 trillion alternative energy complex capable of providing some percentage of the previous energy provided by depleting (oops, I mean "limitless") fossil fuels.

Markets have a funny way of pricing things very cheaply until suddenly they're in short supply, at which point prices skyrocket. The price curve is not smooth, slow and linear; it is prone to abrupt fractal moves.

By the time fossil fuel energy is so costly that alternatives are "obviously" cheap, there won't be enough time or money to construct the immense alternative energy complex everyone will want. As the old Chinese saying has it, "If you wait until you're thirsty, it's too late to dig a well."

Enabling governments to print money via emission credits and Wall Street to mint more money trading, packaging and securitizing carbon credits will not hasten the emergence of a true alternative energy complex; history has shown that most of the trees which were supposed to be planted to "earn" that billion-dollar credit were never planted, or died from lack of care.

It's a scam on every level, and thus is it no wonder that both Wall Street and Central Governments are hoping carbon credits take off.

Ultimately, writing and trading carbon credits will act as a giant tax on productive citizens everywhere. It is a stupendous machine for concentrating wealth and diverting yet more national income into Power Elites' hands--be they private or State.

As Alex S. so cogently notes, the entire carbon-trading scheme is a classicsimulacrum of reform, a facsimile purposefully constructed to offer an illusion of meaningful reform even as it continues the Power Elites' and State's self-enrichment. It is also a classic complexity fortress in which only insiders (Elites) with asymmetric information know how it operates behind the facade and thus they are the only ones equipped to profit from it.

These concepts are from the Survival+ critique, and my views flow (naturally!) from that analysis.

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