Speculative capital and the environment, plus carbon markets

Here is a link to a draft of a paper I presented at the 2006 Global Studies Association here in Chicago. The paper is titled "Speculative capital and the ecosystem of globalization". It will undergo a significant re-write before I am done with it.

Related to this, the New York Times carried an article in Tuesday's paper (5/16/06) called "Data leaks shake up carbon trade" by Heather Timmons (I'm not sure how long that link will be good). It has been one year since the Kyoto protocol went into effect for the 163 signatory countries, and several European countries started leaking out their emissions numbers ahead of the May 15 release date. The initial numbers from France, Sweden and a few other countries were significantly below their allotted permits, meaning that those permits would be available for sale on the carbon market. This drove down the price of carbon permits from about 30 euros per metric ton of CO2 to a low of 9.40 Euros in a matter of days. But on May 15, prices doubled from the day's low to the day's high. (If you are curious about the carbon markets, check out the European Climate Exchange website, which has historical prices, and a good news section.)

It looks like European countries exaggerated their current emissions levels, used to create and allocate the permits. By exaggerating the baseline of pollution used to measure Kyoto reductions, national government's were cutting their local industries some slack. With a high baseline, industry has had to do little or nothing to meet reduction guidelines. Or maybe industries provided faulty numbers: "Governments have been cheated by the big industries, which gave them the wrong assumptions for their emissions," charged Stephen Singer of the World Wildlife Fund. Or possibly industry was on their way to reducing emissions anyway, through cleaner technology, and the Kyoto targets weren't set low enough.

The extreme volatility in the market has upset some traders as well, who taken by surprise by early release of data and data leaks.

The charge that baselines were faulty reinforces the idea that the Kyoto Protocol terms are a joke: open to fraud and deceit, and shooting for targets that will do little to reduce emissions or global warming. "So far, the permit market appears to have done more for the balance sheets of power companies than for pollution control," per the NYT article, since companies were granted the inflated number of permits, which they can turn around and sell on the open market. And the markets themselves, including the brokers, which make money as long as trading is taking place.

jd