Carbon trading markets collapse

Surprise, Surprise selling "hot air" doesn't work, and this took how many millions dollars and research to figure out??

Even as far back as 2005 ordinary people were doing the math. Brad Templeton wrote about "How Prius drivers are gross polluters and other lessons of carbon credits".

The Prius gets about 44 “real” mpg, not nearly as much better than the similar Corolla or Camry models as EPA figures suggest. Consumer’s Union suggests a typical driver will save 176 gallons/year over a Corolla and 284 over a Camry. As the Prius-style non-hybrid is in between, call it 200 gallons or $450/year — $2800 present value over the predicted 8 year life of the battery. Not enough to cover the added cost of a Hybrid today (in part because high demand for Hybrids makes them more expensive) but it is nice to get.

But what if you didn’t buy it and put the saved money into carbon credits? Well, you could offset 681 tonnes of CO2 with $1500 at the current cheap U.S. price. That’s 77,000 gallons of gasoline! Yup. Buy buying the more expensive Prius rather than buying a cheaper similar car and putting the savings into carbon credits, it’s like burning 77,000 gallons of gas. That’s like driving an 10mpg Hummer 770,000 miles — around the world 30 times. Or like taking 10 Camrys that drive 20,000 miles/year off the road for the 8 year life of the Prius. At the European cost, which is more (I’ve seen quotes ranging from $11 to $25) it’s not so bad, $1500 buys only 136 tonnes, or 15,000 gallons of gasoline — only 6 trips around the world in the Hummer. At $25 it’s a more modest 6800 gallons offset by $1500 and only 2.7 circumnavigations.)

Earlier this month Joann Nova with Science and Public Policy Website wrote a great article on "Carbon Credits another corrupt currency?"

"Currencies based on nothing are powerful tools that have reshaped civilizations. But they draw out the darkest elements of human nature. We open this Pandora’s Box with trepidation. Is the risk worth the benefit?"

Of course you won't read or hear about these truths unless your willing to dig. Back in December IPS wrote about "CLIMATE CHANGE: Solar Energy Firm Says Carbon Credits Don't Work"

"A small but successful solar energy company involved in rural electrification in India is complaining that the Kyoto Protocol’s clean development mechanism (CDM) has been of no practical use to it. "

You see everything has its price and so does gluttony, this whole "Carbon Offset" thing could very easily backfire and cause the opposite effect of its original intention as Ed Morrisey at HotAir writes;

Before the US adopts the silly cap-and-trade “market” approach to curbing carbon emissions, perhaps we should see what the recession has done to the European carbon market. The EU has spent a lot of money rediscovering the laws of supply and demand in this recession. Instead of making carbon emissions a scarcity, the economic collapse has created a glut of indulgences:

A year ago European governments allocated a limited number of carbon emission permits to their big polluters. Businesses that reduce pollution are allowed to sell spare permits to ones that need more. As demand outstrips this capped supply, and the price of permits rises, an incentive grows to invest in green energy. Why buy costly permits to keep a coal plant running when you can put the cash into clean power instead?

All this only works as the carbon price lifts. As with 1924 Château Lafite or Damian Hirst’s diamond skulls, scarcity and speculation create the value. If permits are cheap, and everyone has lots, the green incentive crashes into reverse. As recession slashes output, companies pile up permits they don’t need and sell them on. The price falls, and anyone who wants to pollute can afford to do so. The result is a system that does nothing at all for climate change but a lot for the bottom lines of mega-polluters such as the steelmaker Corus: industrial assistance in camouflage. “I don’t know why industrialist would miss this opportunity,” said one trader last week. “They are using it to compensate for the tightening of credit and the slowdown, to pay for redundancies.”

All of which has set off what Julian Glover calls the “Great Pollution Fire Sale”. He blames the EU for being too generous in its allocation of carbon credits, but the allocation was calculated during economic growth. The EU wanted to make sure that the cap-and-trade system didn’t interfere with the economy, and so made sure that the energy producers didn’t get disincentivized enough to create artificial energy shortages that would have stalled growth.

Now, of course, Europe has all sorts of excess capacity in energy production thanks to the economic downturn of the past few months. The cap-and-trade system essentially subsidizes non-production, and the energy producers have cashed in. Only now, those credits aren’t worth warm spit, because no one else is ready to start producing enough to worry about exceeding carbon caps. It’s a perfectly-formed system for failure; no one would part with the credits in boom times, and no one will buy them in a bust.

Part of this comes from the fact that the commodity being traded has no essential value anyway. It’s air, the ultimate vaporware product. There is no scarcity in carbon dioxide, and so markets for it will always be artificial and contrived. Glover’s criticism about the amount of credits is akin to rearranging deck chairs on the Titanic. The problem isn’t the credits, but the falsity of the entire operation.