Sunday, July 3, 2011

The global collapse of the cap-and-trade market

Canada dodges carbon bullet
Collapse of global cap-and-trade market vindicates Stephen Harper


What if they created a global cap-and-trade market in carbon dioxide emissions and nobody came?

That’s almost what’s happening now.

It underscores the wisdom of Prime Minister Stephen Harper’s refusal to be railroaded into carbon trading by the opposition parties and all the usual “green” suspects.

The international trade in carbon credits, having proven ineffective at lowering carbon dioxide emissions, while raising consumer prices and riddled with the same kind of fraud, profiteering and reckless trading practices that led to the 2008 global recession, is now suffering its final indignity.

Almost no one wants to buy carbon credits, which are the stock of carbon trading markets, with each credit permitting the bearer to emit one tonne of carbon dioxide through the burning of fossil fuels.

The signs of a looming collapse in carbon markets are everywhere.

Recently, the World Bank warned the international carbon market was on life support outside Europe, valued at a mere $1.5 billion annually, a fraction of its anticipated value.

Last month, HSBC Global Asset Management (Canada) Ltd. announced it was winding up its global climate change fund, due to “the small fund size and relatively small number of unitholders.”

In November 2010 the Chicago Climate Exchange shut down North American trading, although it continues to trade in Europe.

The reason Europe has been the lone exception is due to the European Union’s Emissions Trading Scheme (ETS), created in 2005 and today the world’s largest cap-and-trade market, valued at about $140 billion last year.

But recently, even the ETS has taken major hits, with the price of a carbon credit falling by as much as 15% in one week, down to its lowest level in more than two years, at approximately 13.65 Euros or $19.11 Cdn.

Reasons for this include the financial crisis in Greece, an excess supply of carbon credits, primarily due to blunders in how they were awarded when the ETS was created, and lower demand due to the after-effects of the 2008 global recession.

There are also widespread concerns about multi-billion dollar tax frauds and corruption, and the credibility of the system for issuing and validating carbon credits, especially under the United Nations’ Clean Development Mechanism.

Most significant is the failure of the international community to draft a successor agreement to the Kyoto accord and squabbling within Europe about whether the EU should set lower emission targets for member states.

Now consider what Canada would be facing had we just elected an NDP minority government backed by the Liberals, or vice-versa.

Since both parties committed during the election to creating a Canadian cap-and-trade market, regardless of what the U.S. did (where the issue is deadlocked in Congress), our government would now be setting up a cap-and-trade scheme at the moment carbon prices are crashing globally.

To be sure, a Canadian market wouldn’t automatically face the problems experienced in Europe, if you believe the NDP or Liberals would have been a lot smarter in negotiating the terms with Canada’s major industrial emitters than the Europeans were with theirs. I don’t.

That said, even if, in creating such a market, an NDP or Liberal-led minority government had confined carbon trading to Canada and succeeded in avoiding the worst abuses in Europe, that would still have meant imposing higher prices on Canadian consumers and businesses, thus putting us at a competitive disadvantage with the U.S., our largest trading partner.

Finally, if your view is we should set up a Canadian cap-and-trade market regardless of what the U.S. does because we need to save the planet from global warming, keep in mind cap-and-trade in Europe has done nothing to lower emissions.

Why? Because however much politicians try to spin it, cap-and-trade is not an environmental program designed to reduce industrial carbon dioxide emissions.

It’s a stock market designed to make money, primarily for giant energy and utility companies and speculators, while raising consumer prices on almost everything.

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