The Flaw in Carbon Trading Sysems
This entry was posted on 3/21/2008 2:51 PM and is filed under uncategorized.
What people do not understand about these things is that they are totally synthetic creatures of law. Their effectiveness is only as good as the law itself. The premise of carbon credit trading is that by putting a value on what otherwise would be a free externality you provide an economic incentive for people to reduce pollution or carbon emissions. For example, a coal burning utility in the US Midwest pays Brazil to preserve rain forest. Fine, but the problem is that who insures that the parties to the transaction don’t cheat? Most markets are self enforcing because each party has a large economic incentive to be sure the thing works. If I buy wheat futures, I have a large economic incentive to get the wheat. What economic incentive does the utility have in insuring that Brazil does not destroy rain forest? Then what power do they have to force the Brazilian government to perform? There are independent certifying organizations but I have doubts as to how well they can police the process especially in emerging markets.
