Climate Task Force

Straight From The Headlines

Many of the top stories featured in today’s major news outlets echo a common theme: ‘the high risks of carbon trading’.

In today’s Roll Call, CTF co-founder Rob Shapiro explains how the creation of a carbon market will lead to price volatility and speculation:

…the ‘trading’ part of these plans involves the government creating a trillion dollars or so in new financial assets (the permits), to be traded, securitized and derivatized under the same mechanisms that have brought our economy to its knees. We know that the prices of these permits will be very volatile. The prices of the permits traded under the current acid rain program here, as well as those traded in Europe’s new climate trading system, have moved up or down by an average of 15 percent to 20 percent per month (with daily shifts as great as 70 percent).

Apart from the impact of this volatility on everyone’s energy bills, it guarantees that the cap-and-trade market will attract hordes of speculators, since financial market speculation depends on rapid price changes. And volatility of this kind on a national or even global scale, especially reinforced by rampant speculation, could regularly disrupt the economy and the livelihoods of tens of millions of people …

Despite its advocates’ good intentions, cap-and-trade could put America at risk of another meltdown – one originally created and financed by the government itself.

The editorial board at the Wall Street Journal expressed similar concern, stressing the importance of transparency and disclosure in trading systems. The editorial outlines several reasons that government oversight is not enough to prevent market instability and price bubbles:

FDR was no Milton Friedman, and neither was Brandeis, but they grasped what we seem to be forgetting, which is that markets are too complex for even the most powerful regulators to dictate. Better transparency is the surest way to make markets more efficient and less volatile. Market wisdom results when more people access better information.

The global credit crisis was made possible by real-time markets powered by new technologies that enabled massive global trading and the creation of opaque securities. It would be fitting now to use another new technology, in the form of XBRL, to make the credit markets simpler, more transparent and better insulated against bubbles.

With Energy and Commerce Chairman Henry Waxman (D-Calif.) and his top lieutenant, Energy and Environment Subcommittee Chairman Ed Markey (D-Mass.), expected to release a draft bill for climate policy as early as tomorrow, it’s critical that our nation’s thought leaders step forward, voice these kinds of concerns, and weigh in on the best way to reduce U.S. greenhouse gas emissions.

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