Carbon Market a House of Cards


AgCertThe fragility of the nascent carbon offset economy is front and center this week. As the U.N. was kicking off its Framework Convention for Climate Change in Bali yesterday, on the other side of the world Irish certified emission reduction (CER) credit provider AgCert saw its stock tumble over 70 percent. The collapse occurred following the company’s announcement that it would not be able to deliver all of the 7.2 million tons of United Nations-approved carbon offsets if had committed for 2008.

This follows Friday’s report from the WWF that a full fifth of U.N. carbon credits issued through the Clean Development Mechanism (CDM) are bogus and actually increase emissions. None of this bodes well for the struggling carbon market. The cap-and-trade carbon solution is the favored mechanism for carbon emissions control, but the U.N.’s top climate change official Yvo de Boer warned last month at the Carbon Forum Asia that the carbon trading market “could disappear more quickly than it appeared.”

Can the carbon offset market be secured? That will likely be determined in Bali over these next two weeks. The CDM should be a major discussion as it has been the cause of many problems for the unstable carbon market. Beyond the WWF’s recent qualms, a bottleneck in the CDM process for accrediting carbon reduction projects hurt another Irish carbon offsetter, EcoSecurities, earlier this year.

In theory, the idea of a cap-and-trade system allows innovative companies to reduce emissions beyond the required amount and sell their extra offsets to companies not able to immediately meet their own reduction goals. However, as the aforementioned issues illustrate, the under-developed carbon market is still very much finding its stride. The Senate is now considering the first legislation aimed at curbing greenhouse gas emissions through a cap-and-trade system. State consortiums are already working on their own carbon markets in lieu of Federal inaction.

Opponents aren’t sure that the world can wait for a cap-and-trade system to stumble into some sort of equilibrium. Last month the head of the Congressional Budget Office told the House Budget Committee that “a well-designed tax would yield higher net benefits than a cap-and-trade approach,” The Wall Street Journal reported.

De Boer tells the Economic Times “it is important that we launch a negotiating process to give the market confidence at the Bali meeting that international climate change policy will continue.” While the future existence of a global carbon market is uncertain even less certain is the potential success of such a market.

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