Discussion in 'Black People Open Forum' started by Ankhur, Dec 15, 2009.
Does anyone have a clear understanding about what this term means?
this animation breaks it down in simple terms
cap and trade
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Program enacted to promote environment-friendly policies by mandating emissions. The emissions allowance is strictly controlled and must not exceed the predetermined cap amount. Emissions permits are provided to businesses, and are capped by government. Businesses are able to transfer these permits to other capped businesses if the business determines that it will not need all the permits provided
What is cap and trade? definition and meaning
Definition of cap and trade: Program enacted to promote environment-friendly policies by mandating emissions. The emissions allowance is strictly controlled and must not exceed the predetermined cap amount. Emissions permits are ...
Is that clear?
I thought not!
here is why they intend it to be $$$UNCLEAR$$$$
Published on Tuesday, June 9, 2009 by Mother Jones
Could Cap and Trade Cause Another Market Meltdown?
The same Wall Street players that upended the economy are clamoring to open up a massive market to swap, chop, and bundle carbon derivatives. Sound familiar?
by Rachel Morris
You've heard of credit default swaps and subprime mortgages. Are carbon default swaps and subprime offsets next? If the Waxman-Markey climate bill  is signed into law, it will generate, almost as an afterthought, a new market for carbon derivatives. That market will be vast, complicated, and dauntingly difficult to monitor. And if Washington doesn't get the rules right, it will be vulnerable to speculation and manipulation by the very same players who brought us the financial meltdown .
Cap and trade would create what Commodity Futures Trading commissioner Bart Chilton anticipates as a $2 trillion market, "the biggest of any [commodities] derivatives product in the next five years." That derivatives market will be based on two main instruments. First, there are the carbon allowance permits that form the nuts and bolts of any cap-and-trade scheme. Under cap and trade, the government would issue permits that allow companies to emit a certain amount of greenhouse gases. Companies that emit too much can buy allowances from companies that produce less than their limit. Then there are carbon offsets, which allow companies to emit greenhouse gases in excess of a federally mandated cap if they invest in a project that cuts emissions somewhere else-usually in developing countries. Polluters can pay Brazilian villagers to not cut down trees, for instance, or Filipino farmers to trap methane in pig manure.
In addition to trading the allowances and offsets themselves, participants in carbon markets can also deal in their derivatives-such as futures contracts to deliver a certain number of allowances at an agreed price and time. These instruments will be traded not only by polluters that need to buy credits to comply with environmental regulations, but also by financial services firms. In fact, a study  (PDF) by Duke University's Nicholas Institute for Environmental Policy Solutions anticipates that if the United States passes a cap-and-trade law, the derivatives trade will probably exceed the market for the allowances themselves. "We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market," says Robert Shapiro, a former undersecretary of commerce in the Clinton administration and a cofounder of the US Climate Task Force.
Banks like JPMorgan Chase, Morgan Stanley, and Goldman Sachs already have active carbon trading desks that deal in instruments connected to Europe's cap-and-trade system and voluntary markets here. But business will explode if a cap-and-trade system becomes law. So it's no surprise that the financial industry has taken an intense interest in the fine print of the Waxman-Markey bill. According to data compiled by the Center for Public Integrity , the financial services industry has 130 lobbyists working on climate issues, compared to almost none in 2003. They represent companies like Goldman Sachs, JPMorgan Chase, and AIG (before it was shamed into temporarily halting its lobbying activities last fall). The industry "wants lawmakers to create a brand-new revenue stream for its bottom line, and cap and trade would do it," says Tyson Slocum of Public Citizen, who is a member of a Commodity Futures Trading Commission (CFTC) advisory committee considering how carbon trading should be regulated.
Among environmental groups, there is, understandably, less focus on the finer points of financial regulation. "The derivatives side is not something that a person who comes to the table worried about carbon emissions has on their agenda," says Michael Greenberger, a derivatives expert at the University of Maryland who has also served in the CFTC and the Justice Department. "Those people-and they're fighting a good battle-opened the door."
Already, the industry has achieved its main objective: The Waxman-Markey bill would create a big, convoluted market for carbon derivatives. Experts from the Congressional Budget Office have said that the most stable and effective form of cap and trade would involve a system in which the government periodically sets prices in much the same way that the Fed determines interest rates. That would prevent volatility, which would in turn remove the temptation to gamble on big price swings. In other words, it would provide far less opportunity for wheeling and dealing-and profits. Rep. Jim McDermott (D-Wash.) offered a proposal for a managed-price cap-and-trade scheme, but failed to gain any traction. Meanwhile, industry groups like the International Swaps and Derivatives Association pushed for a system in which a "broad suite" of financial products can be traded, and that's what Waxman-Markey delivers.
In an especially audacious move, the industry also argued that cap and trade should allow the very same types of unregulated instruments that helped spread risk throughout the financial system like a cancer, contributing to the economic meltdown. In particular, it lobbied for "over the counter" carbon derivatives-deals conducted directly between two parties with no one monitoring the risk. (Perhaps the most notorious form of OTC derivative is the credit default swap, which crippled AIG when it issued too many high-risk swaps while lacking the money to cover them.)
On this front, however, Wall Street was less successful. The day before the bill passed out of committee, Rep. Bart Stupak (D-Mich.) inserted language  requiring all allowance derivatives to be either traded on an exchange or cleared by an organization registered with the CFTC. This would provide a paper trail for regulators, although the reporting requirements for clearinghouses are less stringent than those for public exchanges. Stupak also added limits to prevent speculators from cornering too much of the market. Still, the bill leaves many vital specifics to the White House, directing the president to form a task force to determine precisely how to avoid "fraud, market manipulation and excess speculation." Andy Stevenson, finance adviser at the National Resources Defense Council, says, "I would feel comfortable if much more of it were explicit." He applauds the bill's "spirit" but cautions that "the details are important."
The lobbying battle is not over. Chilton, the CFTC commissioner, praised Stupak's 11th-hour amendment, but expressed concern that it could be removed in the legislative process ahead. The bill, after all, has yet to pass through several more House committees—before the Senate weighs in. That gives the financial sector a few more bites at the apple. At the same time, Wall Street is marshaling its forces  most derivatives trading  onto public exchanges, which would also cover carbon derivatives. "There are so many issues, so many jurisdictional obstacles out there, I'm just worried it's not going to get done," Chilton says. "I don't want people's good intentions to be all we get. I'm worried that people will start clustering and positioning, and the reforms these markets require aren't going to be enacted." against Treasury Secretary Timothy Geithner's proposal to move
Even a well-designed regulatory system may not be able to prevent gamblers from contorting prices and discouraging the investments in green energy that are the entire purpose of cap and trade. After all, one lesson to be drawn from the economic crisis is that complexity is like catnip to the unscrupulous, and the carbon regime that would be created by cap and trade is nothing if not complex.
Perhaps the biggest uncertainty hinges on how offset derivatives—such as a contract to buy offset credits at a future date for a determined price—will be monitored. This too would be left to the White House task force to figure out. It will be a tough task because the quality of offset projects is notoriously difficult to verify. Sen. Jeff Bingaman (D-N.M.) has described them as "fraught with opportunity for game playing, which will be fully exploited, I'm sure."
In 2008, the Government Accountability Office examined the use of offsets in Europe's Emissions Trading Scheme, which theoretically has a rigorous process to certify that offsets are "additional"—that is, that they cause emissions cuts that wouldn't have occurred if the project hadn't been implemented. But even though projects must be reviewed by both national officials and an external independent monitor to qualify, the GAO found that it was "nearly impossible" to ensure that offsets really were additional. It concluded that offsets present "a significant regulatory challenge" and should probably be viewed as a temporary measure at best. "In practice [offsets] have proved impossibly difficult to successfully implement without fraud," writes  Michael Wara, a carbon trading lawyer and coauthor of a Stanford University study  that found that one- to two-thirds of offsets authorized by the Kyoto Protocol's Clean Development Mechanism didn't represent true emissions cuts. "Even in the presence of a tough regulatory system…that is working hard to get things right…lots of counterfeit carbon currency is making it into the system."
Michelle Chan, the investment program manager for Friends of the Earth, believes that if offset derivatives aren't properly regulated, they could become "subprime carbon"—futures contracts that promise emissions reductions but fail to deliver and then collapse in value. Already, she points out, some banks are bundling credits from multiple offset projects and splitting them into tranches to sell to investors. This kind of activity is "hauntingly close" to mortgage-backed securities, Chan told  the House ways and means committee in March, arguing that it has the potential to spread risk throughout the financial system. At a CFTC hearing earlier this year, Skip Hovarth, president of the Natural Gas Supply Association, questioned whether the agency had the tools and the manpower to keep track of such an incredibly complex market, adding, "If this market fails, and all the derivatives and all the markets that attach to it that grow over time fail, it will make this last recession look like nothing.
Again, Europe's experience offers a glimpse of the difficulties of tethering an environmental goal to the whims of the financial system. In the early years of Europe's cap-and-trade system, speculators flocked to trade carbon. Prices seesawed wildly, and analysts warned of a "carbon bubble." Regulators made adjustments to stabilize the market—but then the financial crisis hit and carbon prices crashed. This January, an executive from the French energy giant EDF warned  that carbon trading was in danger of becoming "a new type of subprime tool which will be diverted from what is its initial purpose: to encourage real investment in real low-carbon technology."
During the negotiations over cap and trade, little airtime has been given to the idea that perhaps carbon is fundamentally different from other purely commercial markets that weren't conjured into existence to save the planet. After all, the allowances are an artificial commodity—according to the logic of cap and trade, the government will issue fewer permits each year to encourage polluters to cut their emissions. "The supply is dwindling and will tail off—arguably it's much less clear that you need a derivatives market," says Greenberger, the derivatives expert. "You could try to control speculation, which is what Stupak wants to do—but even in a regulated market there are speculators, many of them.
Could Cap and Trade Cause Another Market Meltdown?
You've heard of credit default swaps and subprime mortgages. Are carbon default swaps and subprime offsets next? If the Waxman-Markey climate bill is signed into law, it will generate, almost as an afterthought, a new market for carbon...
Published on Monday, January 11, 2010 by CommonDreams.org
Carbon Market Nonsense
by Rachel Smokler & Gary Houser
History has seen attempts to commodify land, food, labor, forests, water, genes and ideas...carbon trading follows in the footsteps of this history and turns the earth's carbon cycling capacity into property to be bought and sold in a global market. Through this process of creating a new commodity, carbon, the earth's ability and capacity to support a climate conducive to life and human societies is now passing into the same corporate hands that are destroying the climate.
--from the Durban Declaration on Climate Justice 
For those paying attention to the unfolding disaster of climate change, last year ended with a hideous thud. The Copenhagen debacle which resulted in a largely meaningless "accord", left many climate activists shattered and desperately in need of a stiff drink on New Years Eve. For others, however, spirits remain high as the politics of climate disaster represent profitable new opportunities.
Many of these people, representing some of the most powerful institutions and industries in the world, will get together this week to see just how (and how much) they can squeeze out of the Earth's impending woes. On January 12th and 13th - within the conference rooms of the Embassy Suites Hotel in New York City - the Second Annual Carbon Summit  will convene, bringing together representatives from industry, finance, government, and the corporate environmental groups.
Inside the summit, these monied interests will be enthusiastically discussing how to best take advantage of the emerging carbon markets. Marketing carbon involves cap and trade and/or offsets. Under a 'cap and trade' system, (like the one in the House climate bill and the pending Senate version), polluters are required to cap emissions at a certain level, declining over time. Permits to pollute are then proferred (handed out for free or auctioned) to the carbon-emitting industries. This scheme enables a company that cannot easily reduce emissions in accordance with the level of the cap, to instead buy (or "Trade") the excess permits from another company that can comply with the cap.
When permits are unavailable or too pricey, industries can instead pay someone else somewhere else - so the theory goes - to lower emissions on their behalf; these are the "Offsets". In reality, and despite whatever good intentions, offsets do not reduce emissions. At best they simply move emissions from one place to another. Often they provide support for destructive practices like palm oil plantations and provide a smokescreen for ongoing pollution.
Unfortunately, theory and practice in carbon markets simply do not jive. We have plenty of evidence that marketing carbon doesn't work to reduce emissions. Worse yet, it impedes real solutions. And perhaps worst of all, it leads to the commodification of things like pollution rights, forests, soils, agriculture, biodiversity and water resources. It puts a "market price" on those things that should belong to the "global commons". It turns our most vital resources into nothing more than the property of wealthy, polluting multi-national corporations.
A Proven Failure | Green Allies
The EU experiment with a carbon trade system has been soundly declared a failure. Over-allocation of permits, free permit giveaways, overblown estimates of baseline emissions, cheating, and the passing of permit costs to ratepayers have all contributed to the failure. According to a Citigroup report, it failed to reduce emissions and resulted in huge profits to polluters at the expense of consumers.
The Kyoto Protocol similarly relies on carbon trading through the Clean Development Mechanism. That hasn't worked either. Since Kyoto came into effect, between 2000 and 2005, emissions have not gone down, but rather increased by about 3.2%. Many countries have utterly failed to fulfill their obligations. Analysis of the projects funded through CDM reveals that the majority - around 60% - were projects such as large hydroelectric dams (many in China) that had already begun construction or were even completed prior to receiving CDM support. In other words, nothing was gained and no emissions were reduced, just more business as usual.
Business as usual is, of course, just what businesses want. For the polluters, out of all the options for dealing with the pesky problem of warming, trading permits to pollute is least likely to hurt their bottom lines. Even more sinister, however, is its potential to reap huge profits. There are a number of ways to profit from the carbon markets. Just one example: The U.S. is pushing hard to include agriculture and forestry practices as eligible offsets both nationally and internationally. Such prospects would be a financial windfall for Big Ag firms like Archers Daniel Midland and Monsanto. One of the more absurd manifestations is Canada's proposal to claim their boreal forest as an "offset" excuse for ongoing tar sands extraction.
For financiers, the prospects of a trillion dollar market to manage, broker and manipulate is positively titillating. Goldman Sachs will be present at the summit, eager to have their foot in the carbon game when things get moving. Already facing a congressional inquiry for their role in the dubious sport of derivative trading and credit default swaps, they will not be denied their place at the carbon-trading trough. Coincidentally, Goldman's offices are across the street from the Embassy Suites in Manhattan. It is also interesting to note that the main venue for carbon trading in the US - the Chicago Climate Exchange - is the brainchild of the same person, Richard Sandor (also slated for appearance at this event), who was instrumental in devising the whole concept of hedge funds and market speculation. The potential $3 trillion market in carbon could provide a huge new opportunity for exactly the kind of market gaming that brought us the recent financial collapse. (If you think a housing bubble is bad, just wait until these players start gambling on things that don't even have a home address, for example: top soil that doesn't get turned, trees that are not cut down, or carbon molecules).
The drumbeat for cap and trade has been carried forward with the aquiescence of some of the mainstream corporate "environmental" groups. These "big greens" - like the Environmental Defense Fund and the NRDC - have adopted a modus operandi whose focus is to ensure that the business community is happy and cooperative. Whether or not the policies they advocate actually do the job in terms of protecting the environment is secondary. And their payrolls reflect that cozy relationship with polluters. Unfortunately, ordinary Americans assume that these groups are actually representing the interests of the environmentalists, and the sheer size of these groups enables them to have a dominant voice on environmental policy in Washington. USCAP, a partnership between EDF, NRDC and some of the world's worst polluters, laid out the architecture, based on carbon trade, that was the framework for the US climate bill now going through process.
Beyond Market Solutions | Climate Justice
Outside of the carbon trade summit this week, leading climate scientist, James Hansen  will discuss his perspective his perspective that the physical processes driving the climate toward irreversible tipping points of runaway warming simply do not allow humanity enough time to waste on failed policies. He will be presenting an "open letter" to the chairperson of the conference that argues for true solutions rather than the disastrous distraction embodied in carbon trading. Ultimately, he suggests, that the US climate bill, because of its reliance on cap and trade, would be "worse for the environment than doing nothing".
A growing cadre of people who study the issues are calling for a carbon tax and dividend as a better approach, a position supported by the Office of Management and Budget  (OMB) and even many in the business community. But figuring out how to best "price carbon" is only a piece of what needs to happen. Outside the carbon trade summit, alongside Dr. Hansen, will be Father Paul Mayer, cofounder of the Climate Crisis Coalition , and an outspoken leader of the religious community who also strongly opposes carbon trade on the grounds that it won't work and is unjust.
The issue of justice is central to the opposition to carbon markets. Protestors on the streets in Copenhagen called for "climate justice now" and "system change not climate change". With the gross inequities that leave billions starving in dire poverty, while a small portion of humanity gobbles resources and spews greenhouse gases, it seems unlikely that marketing carbon will resolve the problems. The power structures that have created those inequities, and made such a mess of our planet must be challenged if we are to have a chance at a liveable future. We will have to address the roots of the problem.
This commodification of the commons lies at the heart of opposition to carbon trade. If we allow our forests, farms, livelihoods, and the Earth's rich biodiversity to be sucked into a "carbon market" we turn over our most precious wealth - that which literally sustains life - to polluters, financiers, and speculators. Marketing carbon will only make inequities worse, and perpetuate the damage already done by a system that values consumption over sanity and greed over equality.
A Positive Failure | Next Step
The failure of "world leaders" in Copenhagen last month had one unexpected, yet grand, consequence. It made clear, with stark revelation, that those so-called leaders who gathered in the halls were not yet ready to admit what has become so strikingly clear to those brave climate activists who came together outside: We cannot spend, or consume, or manipulate our way out of this mess; We must take account of our behavior and make the radical shifts that the problem demands. As you will see exhibited again this week in New York, there is increasingly more wisdom, knowledge, and maturity outside on the
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