Conning the Climate

Inside the carbon-trading shell game

01 May 2010

"No, it’s not abstract, up there in the clouds!” exclaimed Talita Beck. “I can see it. I can measure it.” We were talking about carbon emissions; Beck is an emissions assessor, a profession that did not exist a decade ago. Several times a month, she leaves her office in São Paulo, Brazil, in search of greenhouse gases—or, more precisely, to visit sites that have promised to emit less of them. Such commitments, whether made by malodorous pig farms, squalid city dumps, or rural sugarcane processing mills, can be transformed into money by companies thousands of miles away, in Britain or Germany or Japan or any other country that has ratified the Kyoto Protocol.

Carbon trading is now the fastest growing commodities market on earth. Since 2005, when major greenhouse gas polluters among the Kyoto signatories were issued caps on their emissions and permitted to buy credits to meet those caps, there have been more than 300 billion dollars worth of carbon transactions. Major financial institutions such as Goldman Sachs, Barclays, and Citibank now host carbon-trading desks in London; traders who once speculated on oil and gas are betting on the most insidious side effects of our fossil fuel-based economy. Over the next decade, if President Obama and other advocates can institute a cap-and-trade system in the United States, the demand for carbon credits could explode into a 2 to 3 trillion dollar market, according to the market analysis firm Point Carbon.

Under the cap-and-trade system, industries regulated by it—the largest being power generation, chemicals, steel, and cement—are given limits on their total emissions, and companies can purchase emission reductions from others in lieu of reducing emissions themselves. Already, European companies buy and trade their credits frequently under parameters established by the European Union, which assigns a baseline emissions level to major industries as well as future limits they have to meet. The measurement of reductions is relatively straightforward, based on readings from meters installed at regulated power stations and manufacturing facilities.

Keywords: America UN climate change Mark Schapiro Goldman Sachs Barclays carbon trading Det Norske Veritas Kyoto Deloitte Touche Tohmatsu emissions Fabio Marques