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Carbon Credits and Carbon Trading – The New Financial Weapons of Mass Destruction

8 December 2009 4,801 views No Comment

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If¬† derivative securities were the “financial weapons of mass destruction” in the last financial crisis, we are now just getting ready to fire the next missile – carbon offsets.

Carbon credits are already  a huge industry, a lot of people are going to get very rich, and the long run benefits are tenuous at best and scandalous in all likelihood.

When intelligent people cannot make heads or tales of the underpinnings of a security, that security is outright dangerous. Really, carbon credits are like a sin tax that do not really stimulate the long-run behavior we need to make the world a better place. Carbon credits are going to be nearly impossible to audit….this is Bernie Madoff times x 10,000!

Many clever corporations are spinning projects into carbon credits without undertaking any activity whatsoever to actually help the environment.

So what’s the solution? Regulation and enforcement on a global scale. We saw what happened in the United States when businesses purported they could be self-regulating. Good, efficient, regulation is essential for efficient capital markets and is also an essential ingredient to save our planet. We we have to get on with it before it is too late.

Environmental issues must be looked at on a global basis. No point in cleaning up North America if Asia is going to be allowed to pollute like bandits. Countries that can’t get their carbon situation in line must be shunned in trade agreements.

That level playing field that we always talk about is purely notional at this point with regard to environmental responsibility. Let’s hope the world powers can agree on some meaningful carbon targets and then follow it up with a meaningful regulatory watchdog with some teeth.

When you hear carbon credit in the investment community, run away – don’t walk. There may be a lot of money to be made in the short run for some – good pimps seem to spring up wherever there is money to be made without morals.

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