Al Gore, what would you do without him?

One of the problems with a Carbon market is: what is the product and who is the end user? If the money is used to compensate lower income earners, then all we are doing is selling each other insurance. If it is used to seed new technologies, then welcome to Rort City (come on down Al Gore). If it is used to fund 3rd world countries to plant trees, then we are probably all doomed before we start.

Nevertheless, the need of applying some kind of price markers to intangible, but important environment resources is something that is going to be an increasing important paradigm, if we wish to avoid a command economy. Carbon credits are one of the first attempts at this sort of thing. Too bad it’s based on a false premise. I hope it doesn’t discourage other more empirically based efforts to give value to unvalued resources.

The problem (and the genius) with carbon credits is that the scheme is based on the idea CO2 can be traded like a commodity.

Problem is that CO2 is far more difficult to price than real commodities like wheat or iron ore where a vibrant market naturally does the pricing without any help from the UN. A bushel of wheat or a ton of iron ore carries its intrinsic value in and of itself.

Carbon has no value outside of an artificially constructed trading scheme based on the rather shaky narrative that AGW must be stopped.

This doesn’t mean carbon trading can’t work, just that it is far less plausible than a naturally occurring market and that like sub-prime mortgage trading any carbon market will be subject to complete and utter collapse should something unexpected happen—perhaps a spat of media reports predicting global cooling, for instance.

So government has to kick-start an artificial market and this is creating all sort of opportunity for con artists and intrusive, very un-free market government behaviour as well. Ultimately there is no way for a self-sustaining natural market to get off the ground until AGW becomes a far more obvious “consensus.” People have to “believe” in the integrity, transparency and good regulation of markets, especially artificial ones such as future and options exchanges. The modern bourse took generations to evolve the very conditional trust they enjoy today. C trading can’t spring up over night simply by government mandate and a minority faith in a doomsday prophecy.

Where’s Ian Mott when you need the bloke? He would know more about markets than I.

I’ve been total that the Bhutanese government has a Minister of Happiness, who keeps statistics on the Happiness level of the nation’s citizens and it is a much prize economic indicator.

Imagine that!

The basic premise behind carbon credits scheme is quite positive. The idea is to create a market to assign value to a piece of the macroeconomic system that has hitherto been left out of the equation, then let the free market of goods, services and ideas evolve to deal with the problem from there. In theory it is the opposite of government mandated carbon emission controls.

It’s a dilemma well known to farmers. Since the market for farm products doesn’t directly assign any value to the natural resources of the farm, i.e. the soil, trees, biodiversity or water, the pressure is for farmers to borrow against the ecological health of their land as if it were a free resource.

In the same way the price of petrol doesn’t include the cost of saving the planet from the looming global apocalypse ahead.

The difference between the inability of the market to assign price values to difficult to measure things like biodiversity and soil health and the pricing of carbon is that the former have real value, if unmeasured, while the later value can only be based on a belief in AGW doomsday.

So don’t sell the farm to buy shares in a C trading equities offer, just yet.