From the Chicago Climate Exchange (CCX) website

“Chicago Climate Exchange (CCX), launched in 2003, is the world’s first and North America’s only active voluntary,legally binding integrated trading system to reduce emissions of all six major greenhouse gases (GHGs), with offset projects worldwide. CCX Members are leaders in greenhouse gas (GHG) management and represent all sectors of the global economy, as well as public sector innovators. Reductions achieved through CCX are the only reductions made in North America through a legally binding compliance regime, providing independent, third party verification by the Financial Industry Regulatory Authority (FINRA, formerly NASD). The founder, Chairman and CEO of CCX is economist and financial innovator Dr. Richard L. Sandor, who was named a Hero of the Planet by Time Magazine in 2002 for founding CCX, and in 2007 as the “father of carbon trading.” CCX emitting Members make a voluntary but legally binding commitment to meet annual GHG emission reduction targets.Those who reduce below the targets have surplus allowances to sell or bank; those who emit above the targets comply by purchasing CCX Carbon Financial Instrument® (CFI®) contracts.”

Does anyone else notice the incredible similarities between the financial disaster we are currently attempting to correct and this “carbon credit exchange”?  The ongoing sub-prime debacle was triggered by the collapse of over leveraged, securitized debt instruments whose value tanked when the underlying assets decreased in value.  These “financial innovations” CDOs, CMOs and the like turned to toxic waste on the balance sheets of once mighty investment firms; Bear Sterns, Lehman Brothers.  And unlike carbon credits, these financial instruments had real, tangible assets with admittedly depressed, but non-zero valuations  backing them.

On to the bubble in the making …

Just like the housing bubble, the carbon credit bubble is based on the assumption that the underlying asset; in this case carbon credits; will continue to increase.  With ever expanding global markets driving demand for fossil fuels to ever higher rates of consumption, this would be a reasonable assumption. (Provided the underlying science is valid.)  However, unlike a physical asset such as a home, the value of a carbon credit represented by CXX and it imitators is pure fiction; a creation of governmental edict with no intrinsic value.  Carbon caps derive their market not from the intrinsic value of  land and structures, as in the case of a home, but from the simple fact that governments have decided greenhouse gas emissions must be reduced.  Much like a fiat currency, carbon credits are worth what their issuers say they are worth.

Like any exchange, seller and buyer in a carbon credit swap arrive at mutually agreeable prices to exchange goods, in this case the “right” to emit a particular quantity of greenhouse gasses.  The value of these “rights” is dependant on the regulatory environment mandating the kind and magnitude of reductions.  Where these government mandated emissions reductions can not be accomplished by process modification, credits are purchased to meet the imposed goals.

But what happens when the underlying asset suddenly decreases in value?  Declining home values in the United States, which dropped by more than 25% in a 12 month period, brought on the current economic panic that is causing such havoc in the global financial markets.  Almost overnight, portfolios on major investment houses and banks became worthless.

What could cause a similar, precipitous decline in carbon credit values?  The possibility that greenhouse gas emissions are not responsible for global warming would be one such driver.  Recent evidence suggests that the importance of man-made impacts on the global environment have been grossly overstated.  If these studies are true, they would be the impetus for wholesale repeal of greenhouse gas emission limits making the cap and trade credits worthless. 

As was the case with the housing bubble, pension funds, investment houses, mutual funds, the so called “green” funds and any individual investor would take a beating. 

Unlike the housing bubble, the carbon credit “financial innovations” of Dr. Richard L. Sandor, “Hero of the Planet” and ”father of carbon trading.” will be worthless.

Much like the “science” on which the entire scheme was based. 

Please contact your Representatives and Senators and demand they enact legislation to stop this madness before we need $700,000,000,000.00 to bailout the “carbon traders”.