Our planet has entered a new era, an era where the actions of the dominant species now directly control the wellbeing of the planet itself. Luckily, as inherent with any species, we will do whatever possible to protect our own future.
We now know that the burning of fossil fuels produces Carbon Dioxide that directly effects the stability of the planet’s ecosystem. We also now know that deforestation has a double conseqence, burning of trees not only releasing Carbon Dioxide in to the atmosphere but also cutting down trees removes the essential function of sucking Carbon Dioxide out of the atmosphere. We also know that as a species we continue to grow, not only through reproduction but also due to improving healthcare and medical advances we are all living longer, with predictions suggesting we will reach 9bn in 50 years time. We know that the survival of 9bn will depend on certain fundamental needs being fulfilled; clean air, clean water, housing, food and energy, and we know that succeeding in this for 9bn people will be impossible unless we change our habits.
So as the responsible species we seek solutions, and we have the tools to be capable of doing so. Technology is advancing. We are developing better educational systems to outline the problems we all face. We are developing better methods of purifying and recycling water. We are developing more environmentally-friendly ways of constructing homes, communities, offices, factories, and implementing infrastructure to maintain our lives. We are working on global political movements to ensure that all humans live and work towards our common survival. We are developing new environmentally-friendly technologies to deliver the energy we need, harnessing solar, wind and bio-fuel energy, and methods of reducing our power consumption. We are implementing regulations to protect the existing forests of the World, and incentives to plant new forests for the World.
We now face the greatest challenge, not just fast and smooth system implementation but most importantly how to integrate this in to our financially-driven societies. The rapid creation of the Carbon Markets is crucial and necessary, giving Carbon emissions (or the lack thereof ) a financial value across as many industries as possible. This illustrates our survival instinct not only as a species but at an individual level - the age-old desire to gain via trade. As Carbon Markets develop the greatest concern is how to develop them to perform their fundamental task, ensuring the health & safety of our grandchildren, whilst still giving us the platform to compete amongst one another.
The Carbon Markets are essentially derivates markets, buying and selling “futures” or ‘forwards”, aka the promise to deliver a Carbon Allowance or Credit at a set price at a set date in the future. The danger arises with the necessary inclusion of Carbon Offset Credits, in that these are “earned” for NOT emitting Green House Gases (GHGs). So they are not a genuine product. Issues have already arisen with dangerous GHG chemicals being produced and then destroyed purely to gain the Carbon Credits. Verification and assessment methods for quantifying volumes of GHGs emitted are still not perfected, and many industrial projects going ahead anyway will claim Carbon Credits despite not being intentional for that purpose. Welcome to Subprime Carbon. Alarm bells ringing yet?
Today over a third of Carbon trading is suspected to be Carbon Offset Credits, leaving the door wide open for Subprime Carbon. Traders and speculators make up the majority of the market place, with independent carbon indexes and carbon funds already structured not to help companies achieve their Carbon Caps, but purely for capital gain. Should this really be an open market-place, where speculators can roam free and where hedge-fund tactics will surely selfishly allow the bubble to form with no care for the serious need for a stable market? Securitization of various classes of carbon offset credit projects can easily be done, and is no different from the very same securitization of various mortgage products which led to the eventual downfall of the credit market. These two models will be the same, and it could easily be far more difficult to analyse the variation in carbon-backed securities, which would eventually lead to a collapse of similar magnitude.
Can we afford for this, probably the World’s largest but definitely most important, market to disappear down the same black hole into which our financial markets fell? Serious regulation is needed, united and inter-communicating, not self-regulating such as the debacle of Wall Street over the past decade. Conflicts of interest must be keenly investigated and whilst the development of sophisticated products will be unavoidable in the future, they must also be scrutinised and independently regulated. How corruption, political influence and Wall Street will be kept separate from destroying the environmental integrity of the market is yet to be seen. Emission-reduction target setting must be based on unbiased scientific opinions and emission tracking must also be analysed by effective and independent monitoring systems. Price and market transparency is also essential.
Where we will end up in the future we can not tell, what we do know is that the road to get there is a treacherous one, which we have no choice but to take.
