Thursday, August 13, 2009

Goldman Faces Carbon Market Curbs in Senate Proposals (GS; JPM)

Important Update, immediately above.
Original Post:
There is no need for financial intermediaries in the proposed carbon markets.
I still have (despite the giveaways in Waxman-Markey) an image of "100% auction and rebate", with power company CEO's bidding in an open-outcry auction market.
Any secondary trading can be accomplished electronically, between emitters.
The academic argument of "greater liquidity" from "financials" participation is overwhelmed by the known market manipulation, in every market, of the big banks. As we've quoted before:
The whole reason for the existence of traders is to make as much money as possible, consistent with what's legal...I lived through this: if you didn't manipulate the market and manipulation was accessible to you, that's when you were yelled at.
-Former Goldman Sachs trader
New York Times, May 8, 2002*
From Bloomberg:
Goldman Sachs Group Inc. and JPMorgan Chase & Co. would be barred from a planned U.S. carbon- emissions market or face trading restrictions under proposals by Democratic senators crafting climate change legislation.

At least nine members of the majority party say speculation by Wall Street banks may cause excessive price swings in the cap-and-trade system of pollution allowances at the center of President Barack Obama’s plan to curb global warming.

The senators say they may limit participation to polluters needing permits, ban derivatives or impose stricter regulations than exist in today’s energy markets.

“The volatility that has existed in the oil market is exactly what we don’t want to happen in carbon markets,” said Senator Maria Cantwell, a Democrat from Washington state who wants to exclude financial companies from the carbon market. “The banks contributed to that, and the banks continue to contribute to it.”

Debate over the banks’ role may thwart Obama’s efforts to get the 60 votes needed in the 100-member Senate to approve climate legislation. There are 60 Democrats in the Senate, and Republicans largely oppose a similar House bill passed in June.

Most senators favor letting financial companies trade carbon-dioxide permits, said Kevin Book, a Washington-based managing director for ClearView Energy Partners LLC, which does energy analysis.

House Bill

“If you take away the financial market component, you’ve stolen somewhere between four and six votes,” Book said in an interview...

...Goldman Sachs spokesman Michael Duvally said the company had no comment. The bank “will continue to act as a market maker in emissions trading,” including carbon dioxide, according to an environmental policy paper it issued.

Curbs would apply to any bank that wanted to participate in the U.S. market, including some of Europe’s largest carbon traders such as Britain’s Barclays Plc, Societe Generale SA of France and Deutsche Bank AG of Germany.

Markets will have inadequate liquidity without bank participation, Bill Winters, co-chief executive officer of JPMorgan’s investment bank, said at a July 23 press conference in New York.

Carbon markets “will die, and the temperature on the planet will go up by a couple of degrees, more than it would have otherwise, and we’ll be really sorry about it,” Winters said....MORE
The carbon market professional we quoted in "The Bored Whore of Kyoto":
"I don't know if climate change is caused by burning coal or sun flares or what," said the Moscow-based carbon cowboy. "And I don't really give a shit. Russia is the most energy inefficient country around, and carbon is the most volatile market ever. There's a lot of opportunity to make money."
See also:
Carbon Trading: Senate Confirms Goldman Alum to Head CFTC
Climateer Investing on Carbon Trading and Traders

Goldman, Morgan Stanley Threatened by CFTC Review (GS; MS)

Richard Sandor, Barack Obama and the Founding of the Chicago Climate Exchange (CLE.L)
And from "California's cap-and-trade won't work":

Here at Climateer Investing the comparison between California electricity deregulation and carbon trading seemed self-evident, based, if for no other reason, on the fact that the pals and alumni of Enron are the ones pushing the trade. Now the media is picking up on where the trade part of cap-and-trade is going. The LA Times gets it.

From the Los Angeles Times:
California deregulated its electricity industry in 1998, and shortly afterward the lights went out. Apparently, regulators hadn't realized how easy it would be for unscrupulous traders such as Enron to manipulate the state's power market once it was open to competition; the results were rolling blackouts and skyrocketing electricity charges. Californians are for all this -- in many areas, power bills are inflated with extra fees to cover bonds and other expenses incurred during the disastrous experiment....MORE

We have dozens of posts pointing out the incestuous relationships between Enron and the Carbon Cartel, Here's a good one:
Claussen: US cap-and-trade system 'by mid 2009' and Enron makes a Cameo Appearance

The Pew Center is a founding Member of USCAP. Eileen Claussen has lobbied relentlessly for cap-and-trade for over a decade, starting even before she invited Enron to join Pew's Business Executive Leadership Council.*
Here's the infamous Enron memo from John Palmisano, Dec. 12, 1997, on his activities in Kyoto.

...If implemented, this agreement will do more to promote Enron's business than will almost any other regulatory initiative...

In addition, a carbon emissions trading system will be developed. While the trading system will be implemented by 2008, I am sure that reductions will begin to trade within 1-2 years.

Palmisano thought those two points were so important, he put them in the second paragraph of the three page memo....