Big Carbon

So, how’s that carbon-trading thing going?  Big Carbon set up shop in the European Union in 2005, and is scheduled to make its North American-franchise debut in California in January.  How goes the trade?


The answer in Europe is: not well.  Carbon trading is a zombie in Europe.  It’s going to start eating flesh pretty soon.  It’s on a rampage stirring up the airline industry overseas right now (on which more later), but its “life” inside the Union is creepy and inverted.

Since the inauguration of the EU’s Emissions Trading Scheme (ETS), 97 percent of emissions certificates – “permits” to emit carbon dioxide – have been given away to commercial users.  The certificates actually being sold were going for over 14 euros each in 2010, but their price has fallen by 60% in the last year.  The stock exchange in Bavaria closed its ETS trading operation on 30 June, due in part to its pointlessness.

What this means, just to be clear, is that there isn’t enough demand for any of the things you have to buy carbon permits for to justify buying them.  If you can get them for free, great.  But if you have to pay for them, you can’t earn enough to make that worthwhile.

Starting in 2013, however, European power generating companies will have to buy all their permits.  Consumer rates and prices in general will therefore go up.  Germany, with the continent’s biggest economy, is also reportedly planning to cut the number of permit freebies by 56 percent next year, which will force more businesses to pay for their permits.

To be clear, one more time:  From 2005 to 2012, the EU economies have not had to absorb the full cost of carbon trading.  Three percent out of 100 is not representative of the actual scope of the cost.  The EU hasn’t truly implemented ETS, so the record to date is not an indicator of what will happen when ETS is being paid for by everyone.  (That said, the estimated cost to the European consumer so far was about 210 billion euros as of mid-2011 – for zero reduction in carbon emissions.)

We have learned what a boon ETS can be for fraudsters.  Ingenious criminals have been buying up permits and charging a VAT when they sell them in another country, but pocketing the VAT revenue instead of handing it over the authorities.  The fraud has amounted to billions of euros.

There have been other forms of criminal activity.  ICE Futures, Europe’s biggest trading exchange for carbon permits, suspended prompt trading in permits in early 2011 due to the high incidence of fraud.  Prompt trading remains suspended, and apparently no one but the crooks has missed it.

At least one industry slated to be hit with new carbon costs is the airline industry – and non-European airlines aren’t taking it lying downChina and India have already made policies that prohibit their airlines from paying the EU-imposed carbon-permit fees.  Russia opposes the carbon fee as well, and the US is leading a consortium of nations pressuring the EU not to go ahead with the plan.  The House has approved a law prohibiting US airlines from complying with the EU requirement, and the Senate is to vote on the matter soon.  (Don’t take too much heart from this: the US-led group wants to proceed with a global, UN-sponsored plan, rather than the regional EU plan.  It’s a dodge in terms of the current EU issue, but it keeps the door open to a globalized carbon-tax scheme that would gouge Americans the hardest.)

Airlines are warning the EU that the airline carbon tax will drive away business and stifle economic growth, but of course, the airlines are just hateful, racist, capitalist fat-cats who only care about killing old ladies and puppies with evil profits.  (Interestingly, the ETS giveaways have set up a number of European companies with big stockpiles of carbon credits, which they can theoretically sell someday for a profit, if anyone wants to buy them.  As described at the JoNova link in the third paragraph, enterprising Irish power producers have already passed on their future carbon-credit costs to their consumers.  They’ve been getting the giveaways that will end in 2013.  The Irish parliament, appalled at this, added a profits tax to keep the power producers in their place.  Naturally, the option of simply not doing any of this doesn’t occur to anyone.)

The UN’s Clean Development Mechanism (CDM) is tied closely to the EU ETS, getting much of its cash from ETS sales to the disadvantaged carbon emitters: the three percenters who haven’t been getting freebies up to now.  The problem with the nascent “global market” in carbon offsets is that it, like the EU market, is vastly oversupplied.  The CDM works as follows:

[G]overnments and companies in developed countries can earn emissions offsets (CERs) by investing in low-carbon projects in developing countries. They can use the credits to achieve their Kyoto targets.

We may note that the way CDM works doesn’t reduce the carbon emitted into the atmosphere, it just induces investment money into low-carbon projects in developing countries.  Investing in this manner is counted as a reduction in carbon emissions, even though that’s not what it is.  This is basically a whole bunch of snake oil.

But interest in it has flagged dramatically anyway.  Emissions offsets, called CERs under the CDM scheme, have lost 70% of their value in the last year.

US carbon trading

Carbon trading has plummeted into an abyss of disinterest, even the Chicago Carbon Exchange having gone belly-up in 2010.  (It’s now being sued for fraud, since its investors were attracted with promises of futures, and now there aren’t any.)

The Northeast’s Regional Greenhouse Gas Initiative (RGGI) has also seen plunging demand for carbon permitsNew Jersey pulled out of RGGI in 2011, and New Hampshire is considering it as well.  The New Hampshire legislature passed a new law last week requiring the state executive to get approval from the legislature for participation in any more carbon schemes.  The big complaints?  RGGI has driven up utility rates for consumers and isn’t making much money for the state treasuries.  (This site has a good history of the sluggish sales at RGGI’s auctions.)

You have to be really, really stinking-drunk rich to play pretend with carbon trading, and fewer and fewer nations (or states) can afford it with each passing month.

California’s big adventure

So what’s the overextended, under-revenued state of California planning to do?  That’s right:  open its carbon-credit market for business in 2013.  Oh, and Quebec is joining in California’s suicidal plunge.  Eight US Western states that were originally signed up for the Western Climate Initiative (the state-chartered operator of the carbon-credit exchange) have dropped out, but Quebec – on the other side of the continent – is hanging tough.

Governor Jerry Brown and his carbon bean-counters have already baked $1 billion in projected carbon-credit revenue into his 2012-13 budget proposal.  That’s an optimistic projection, to be sure, but a characteristic one.   In the Unhatched Chickens Sweepstakes, the state also assumed $1.9 billion in revenue from the Facebook IPO (I’m not kidding) for the same budget proposal.  And those two highly risky assumptions still leave California with a $16 billion current deficit on paper.

Now it’s time to guess which state-chartered agency has been exempted, with a legislative sneak-by in 2012, from California’s “open-meetings” law, which stretches back to 1967 and explicitly includes state-chartered semi-private organizations.  Yes, it’s the Western Climate Initiative.  This agency that’s going to implement policy on taxing carbon emissions gets to meet in secret, without public scrutiny, to make its decisions.

Keep in mind, carbon-trading is an entirely artificial activity, created out of no concrete need, but from an abstract and unproven theory about catastrophic warming.  Each one of the points made publicly in furtherance of the theory has been proved to not be based on observable fact:  there are four to five times as many polar bears now as there were 40 years ago; the globe has not warmed at all in the last 20 years, but has cooled slightly; the Antarctic ice pack is bigger than it was 30 years ago, even though the Arctic ice pack has receded (but is regaining thickness again in the last 3 years, a prelude to horizontal expansion); the globe was demonstrably – based on actual temperature observations – warmer from the 1920s to the 1940s than it has been for the last 20 years, yet human carbon emissions were dramatically lower in the earlier period; the famous “hockey-stick” graph was based on falsification of data, and the globe was in fact warmer in the Medieval Warm Period than it has been at any time since; and in any case, the UN’s own scientists have said that we don’t even have a method of observing or analyzing the “feedback” mechanism that is believed to create a warming danger for the earth, much less for predicting its effects in the future.

The case for catastrophic anthropogenic global warming and/or climate change has fallen apart on examination so far.  Therefore, the whole carbon-trading scheme is based on a false premise.  It is an excellent moral lesson that nothing can go right with a policy that is based on falsifying and misrepresenting data.  From criminal fraud to tremendous loss of putative value in the exchange unit, this is what you get when you impose artificial requirements that meet no valid real-world need on the people.  Nothing good can ever come of it – and this has been, so far, only a very small dose.  Any bigger ones will be much worse.


The carbon offset certificate reflects a donation of 27,000 tons of emission credits to the Democratic National Convention in 2004 by Boston Carbon.  The credits donated by Boston Carbon to the DNC were created through the capture of fugitive methane gas from Jim Walter Resources, Inc., a coal mining company in Alabama.  Boston Carbon kindly donated to the Republicans as well.


J.E. Dyer’s articles have appeared at The Green Room, Commentary’s “contentions,Patheos, The Weekly Standard online, and her own blog, The Optimistic Conservative.