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Could carbon trading trigger a new financial crisis?
This is the view of environmental group Friends of the Earth, which warned last week that banks and investors are packaging carbon credits into increasingly complex financial products similar to the derivative products devised by bankers and blamed for the collapse of financial markets.
Carbon markets facilitate the buying and selling of certificates, each attached to projects that produce quantifiable reductions in emissions of any of the greenhouse gases that contribute to global warming.
Put another way, carbon markets facilitate the right to pollute. They are enabled by limits on emission reductions for countries, industries and/or companies. If the limits are exceeded, those obliged to stay within their bounds may purchase carbon credits, thus offsetting their emissions output.
Global carbon trading could, over time, grow into a multi-trillion dollar market if next months round of talks in Copenhagen for a deal on global warming expands on the cap-and-trade system.
Friends of the Earths points out (with some degree of accuracy) that carbon trading has done little thus far to reduce global emissions. The organisations view is that an expanded trading system wont be able to deliver required cuts quickly enough to avert climate catastrophe. In a nutshell, a global carbon market risks a
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