Follow the Money
If you think the recent hard push to address global warming by the World Bank, the UN and the Al Gore is a purely altruistic proposal to save the planet, think again.
The World Bank, under the auspices of concern for the planet, has handed Wall Street a new, lucrative trading scheme – trading in carbon emissions. Already begun in the EU in 2005, the new trading scheme is expected to bring in $23 billion this year – doubled after only one year of trading. Not bad, considering it’s all hot air! This Friday, the Obama administration is going to push hard to get their cap and trade bill passed. It’s great for Wall Street and absolutely a disaster for Main Street.
The following is from February 15, 2007 Shooting From the Lip:
In January, 2002, 13 corporations considered to be some of the nation’s largest greenhouse gas emitters — including DuPont Co., American Electric Power Co., Ford Motor Co., and Motorola Inc., joined with the city of Chicago to establish the newest exchange, the CCX.
CCX is the brainchild of Richard Sandor, a Northwestern University expert on extending the principles of commodity trading to environmental protection. Funded through $1.1 million in grants from the Chicago-based Joyce Foundation, the exchange is modeled on the EPA’s Acid Rain Program, a “cap-and-trade” system to reduce electric utility emissions linked to acid rain. *1
Greenhouse emissions have value
CCX is patterned after the Chicago Board of Trade, the Chicago Mercantile Exchange, and other commodity exchanges. While some environmental groups claim CCX is no substitute for a mandatory federal system, the exchange may set the stage for a federal program because it creates a market for carbon transactions. In doing so, the exchange will help decide the price at which carbon should trade on the market. Chicago’s Richard Daley, serves as the exchange’s honorary chairman.
The right to emit the equivalent of one metric ton of carbon dioxide now sells for $3 to $8, said Dr. Sandor. When the international Kyoto Protocol on climate change takes effect in those countries that have ratified it (Russia, for one, has yet to act), that price is expected to rise sharply. Most experts agree that greenhouse gases will become a major commodities market.*2
How It Works
Carbon trading is a volatile market that has drawn an array of brokers, bankers, and arbitrageurs who make money on the gap between the costs of greenhouse-gas reduction projects and the current price of carbon allowances. That price rose steadily early in the year to nearly $40 per ton of carbon, then tumbled hard in the spring to less than $12 when it was revealed that several European governments had been too generous with their industries when handing out allowances.
The market recovered somewhat in summer but slumped again this fall along with energy prices. The price has been lolling around $12 a ton in recent weeks, way below the $85 a ton that economist Stern believes is the real cost to society of pollution from carbon.
“We believe CO2 is a commodity that over time will trade no different from natural gas, fuel oil, or any other futures in the financial markets,” says Eugenio Meschini, managing director of Cargill Emission Reductions Services.
While the debates over this scheme goes on in Washington, governors of several states have already jumped on the bandwagon.
California Gov. Arnold Schwarzenegger announced in October a market approach to implementing the state’s new carbon law; he has signed an agreement with British Prime Minister Tony Blair to work toward connecting with the European system.
Goldman Sachs showed it has enough faith in carbon trading that in September it bought a 10 percent share of the holding company that owns both the Chicago exchange and the largest trading platform overseas, the European Climate Exchange.
Another Wall Street vote of confidence: In October, Morgan Stanley announced it would invest $3 billion in the carbon market over the next five years-the largest single investment to date. An additional $7 billion is invested in more than 50 “carbon funds” worldwide, says Guy Turner, director of New Carbon Finance in London. Half the money comes from governments looking to meet their Kyoto targets and the other half from private and institutional investors like pension funds-with nearly 30 percent of the private money managed from the United States. *3
AFP notes that “Wall Street could become the world’s center for lucrative markets in carbon trading, or be left behind if the US government ignores climate change, a senior British lawmaker said Tuesday. Ahead of a gathering of global lawmakers at the US Senate to debate action on global warming, legislators said the EU’s emissions trading scheme offered a model for the US, China and India to follow. Former British cabinet member Stephen Byers said the London Stock Exchange was already developing the infrastructure for companies, including US multinationals, to trade in carbon emissions. …” *4
*1 U.S. News & World Report-Dec. 18, 2006
*2 Progressive Policy Institute-Sept. 5, 2003
*3 U.S. News & World Report-Dec. 18, 2006
*4 The World Bank-Feb. 14, 2007