Wednesday, May 13, 2009

Making the Case for Carbon Trading

Trading carbon emissions is the next big thing in financial markets. Despite opposition from some Republican camps (citing it will 'cost businesses money') the U.S. looks set to pass climate change legislation any day now. As with most things that are good for us or good for the environment, the government has to tell us to do it or else. Without government intervention, few U.S. utilities or manufacturing plants would willingly move from using fuels that pollute and produce carbon dioxide to fuels that are cleaner. Texas is already complaining that carbon allowance costs will add $10bn per year to the cost of producing electricity. This means an extra $27 per month on the average electricity bill, according to Reuters. What this will do is encourage utilities to use less polluting sources of power such as wind turbines (which Texas has plenty of room for, unlike Cape Cod) and solar. Eventually those electric bills will come down.
Meantime the CFTC is preparing to regulate and monitor carbon trading if legislation passes. It has formed and expanded a panel called the Energy and Environmental Markets Advisory Committee to prepare the government for carbon trading. The CFTC said that the panel will help it to prevent 'fraud, abuse and manipulation' of carbon markets. Given the CFTC's dire track record of preventing these things in energy futures, I have my doubts. But the fact that Dr. Richard Sandor and Bob Pickel are on the panel gives me hope.

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