Tuesday, August 12, 2008

The Seeds of Corruption

There are a lot of reasons to believe that the most effective way to move renewables and efficiency into the head of the energy preference line is with a carbon fee. But perhaps the most compelling reason we should favor a global climate premium on all fuels that emit carbon over a carbon trading system is its relative simplicity.

With a carbon fee, if you emit carbon into our atmosphere, you must pay for it. It's like a tipping fee at the local dump. And if you think about, (and they will in a hundred years) why in the world do we think we have this god given right to place CO2 into the global commons with impunity anyway? ( it probably has something to do with 100,000 years gene patterning)

In just a few generations though, the notion of filling the air with greenhouse gas will be seen as downright uncivilized and as advanced as throwing your sewage into the street.

In the meantime, the big money is on carbon trading. And here's an example of why:

Cooking up carbon credits
By distributing energy-efficient stoves in Africa, JPMorgan Chase aims to reduce greenhouse gases - and increase profits.
Fortune Magazine
August 12, 2008

By any measure, it is a long way from the Park Avenue headquarters of JPMorgan Chase, the global investment bank that generated revenues of $100 billion last year, to the dusty streets of Kampala, Uganda, where a poor woman can buy a new cook stove for about $6.

What connects the big bank to that small transaction is the business of carbon trading.

JPMorgan is quietly pushing the boundaries of the carbon market - a sprawling international experiment to reduce the greenhouse gases that cause global warming - by subsidizing the distribution of efficient cooking stoves in poor countries.

Because the new, improved stoves save fuel and produce less carbon dioxide than traditional stoves, they generate so-called carbon credits that can be sold to companies or individuals who want to offset their own emissions.

The business is complicated, controversial and potentially very profitable.

How profitable?

If all goes according to plan, JPMorgan will expand its support for cook stoves from Uganda into Kenya, Ghana, Cambodia and beyond. Each stove is estimated to reduce carbon dioxide emissions by two to three tons a year; each ton generates a credit worth $10 or $15 a year, and potentially more, for the bank.

"If you can distribute 10 million stoves, you are talking about a substantial tonnage of carbon," says Odin Knudsen, who oversees JPMorgan's carbon finance business. Do the math - you could be looking at a business with modest costs and between $200 million and $450 million a year in revenues.

JPMorgan isn't alone.

All the big global investment banks - including Barclay's Citigroup , Goldman Sachs , and Merrill Lynch - are hurrying into carbon finance. Point Carbon, a consulting firm, says the global carbon markets generated $59 billion in revenues in the first half of 2008 - almost as much as the markets did in all of 2007. (clip)

If projects like the Uganda cook stoves are approved under the Kyoto protocol, which governs the regulated carbon markets, the business will become even more lucrative. Credits on the

European Union's regulated market are currently trading for more than $32 a ton."

Several times in the last year, when folks have asked me about how to get in the clean energy business, I have responded with something like this, "Well, if you are in this to make money, get into carbon trading."

The problem with this little scheme is that its effectiveness exists only in the minds and in the studies of its creators. There are no performance standards. What if its users decide to throw the stove out because it doesn't work. What if they move to propane? Or, for that matter, what if they were given solar ovens?

What if it doesn't reduce carbon emissions or even decrease wood use?

In the meantime, some polluting utility will be able to continue burning coal because the emissions are supposedly offset.

By this standard then, every solar panel should receive a carbon offset. Every efficiency program should receive an offset. Using your computer or your phone instead of flying to see your client should receive an offset. Not going to grandmothers this Christmas should get an offset.

Sure, we could pay goat herders to reduce their herds so the shrubs will grow and thus flow some money to the poor.

But more likely than not, carbon trading will be a golden recipe for flowing money to the wealthy (or soon to be) in the name of doing something good. And that may or may not be the case.

It is pregnant with the seeds of corruption.

If all carbon fuels had an emissions fee tacked on, all the other good things we should be doing will rise up in value. And we won't need a bunch of investment banks raking in the profits to do it.

But if you want your wealth to flower,

Get thee into carbon trading.

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Anonymous Anonymous said...

sigh. is everything good that anybody does going to end up corrupted?

9:50 AM  

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