Monday, November 30, 2009

"People don't trade carbon because they are good people" CEO, ICE European Climate Exchange

And anyone who pretends otherwise is a liar or a fool.
The reality of what traders spend their time doing puts the lie to the argument that "we need offsets to 'lower the cost'" of implementing cap-and-trade.
The entire purpose of C&T is to raise costs and the entire purpose of offsets is wealth transfer with a government imprimatur.
From The Telegraph:

European Climate Exchange chief Patrick Birley defends the carbon trading system

"Why should it be different as a commodity to the way people trade oil or gas?"

As the man in charge of the world's biggest exchange for companies, banks and hedge funds to trade permits to emit carbon dioxide, Birley is fed up with the environmentalists' charge that dirty capitalists should not profit from the global effort to tackle climate change.

Ahead of the Copenhagen summit next week, campaigners such as Friends of the Earth have argued that the entire system is so flawed it may need to be demolished in favour of a straightforward tax on polluters.

Firstly, they insist, the European system has failed in its fundamental aim to reduce emissions, meaning its only effect is to redistribute wealth among companies and traders. Secondly, the market is a magnet for derivatives that few people understand, brewing up a second sub-prime bubble. Lastly, the opportunities for fraud are vast, given the intangible nature of the product. .

These well-worn concerns are resurfacing as the whole concept of carbon trading stands at a crossroads. This totally invented $126bn (£76bn) market has the potential to flare into a $2 trillion green giant over the next decade, if US President Obama manages to push his carbon trading bill through the Senate early next year.

The Commodities and Futures Trading Commission even believes that within five years, carbon could surpass crude oil as the world's most traded commodity. Mr Birley is the first to admit that the European system "hasn't actually reduced emissions" so far. But having run exchanges throughout his career, he has faith in the ability of the market to deliver in its own good time.

"The goal of the system is reducing emissions: why should it matter how we get there?" he asks.

With weariness, he debunks the idea that policymakers can control who makes money from reducing emissions. The point of a market mechanism is that the market decides.

"Carbon-related products are probably the most profitable part of trading for any of the investment banks right now, because the margins are so good," Mr Birley admits. "Because it's such a specialist area, a little bit of knowledge goes a very long way."...MORE

Well actually policymakers can go with cap-tax-and 100% rebate, they can go with 100% auction combined with annual minimum and maximum prices (thus recreating a tax), they can ban financial intermediaries and permit trading only among energy producers, they can... well, you get the idea.

Here's the truth of the matter from a post three weeks ago:

Senators Call for Financial Reform Before Cap and Trade (BRK.A)

Ain't gonna work. A quote we've posted a few times:

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 the junk bond caused S&L bailouts to Long Term Capital Management to the Dot.bombs to the California electricity frauds to sub-prime and credit default swaps the lesson is:

Wall Street can not be trusted. Period.
If we let the camel's nose under the tent flap it is too late. The Wall Street banks will game any system the regulators can think up.
Remember, this is an entirely artificial "market" that Wall Street is "helping" to design.
What the hell do you expect?>>>MORE