02092010

Chicago Climate Exchange drops 50%, new record low

See here for the article reporting this interesting fact. It does indeed, in the US at least, look like carbon trading is dead.

Now, this is actually a Good Thing (tm); as anybody who knows how incentives in a free market work - those who stand the most to benefit from the incentives will set things up to maximize the opportunity to gain said incentives; regardless of what the end effect actually is.

To put it simply, if you create a 'trade' in carbon, you are creating value where there wasn't one before regardless of what the true long term 'environmental' value of said object or action was or will be.

For example, quite a lot of governments are providing carbon credits on the installation of solar panels, that is harmless in itself, but the trouble comes when they add 'multipliers' onto those credits. In effect you have a whole load of carbon credits not 'backed' by any real carbon savings, so diluting the market worth of such instruments - so it should come as no surprise the value of carbon is approaching zero. That has very little 'real' carbon behind it if the truth be told.

But, it gets worse; the carbon value of that solar panel assumes lifetime operation of said panels. Rarely does this occur in the real world, for instance technology is in the works that could easily double the efficiency of solar panels at the current cost point. When these new panels come along, you would be nuts to not consider upgrading - the opportunity cost just halved itself for you in relation to the energy produced. So what happens to the carbon credits on the old system? Well they become 'phantom' as they are no longer backed by the carbon being saved..

Carbon trading does not really work in the long term. If we want people to adopt more green ways, reduce the taxation on such products; i.e. give them a simple financial advantage in the market place - that will soon sort things out.