Hot Air

I've been thinking a lot about the entire Global Warming issue in the past few weeks. I've always wondered about the legitimacy of AGW and have my doubts. My personal thoughts aside, it looks like the powers that be are finally moving towards a Cap & Trade system. The momentum is now definitely in favour of the Goracle and his green minions. Instead of railing against the science, or some of my problems with the science as the case may be, I want to talk about Carbon Markets.

I awoke last week with the thought that this thing is happening now, whether I like it or not. My second thought was that if and when the US finally gets on board the green train, there will be a substantial amount of money to be made in the Carbon Market. I'll let the scientists and policy makers battle out the reality of AGW and let the temperature of our planet be the proof. As with any of the trades I make on the stock market, I will never let my preconceptions get in the way of taking profit or stopping loss.

With that in mind I set on my merry way to research some of the current realities of carbon trading. Here are some of my findings and thoughts.

1. Anyone who thinks that the big bad oil companies and coal powered utilities are going to pay for this is living in a fantasy world. The costs, as with any regulatory regime, will be passed down to Joe Paycheck as he tries to fill his car, buy food and heat his home.

2. Much like sales tax, this new cost will disproportionally burden the families and individuals that are just scraping by. When the cost of everything, and the price of energy is reflected in the cost of everything, goes up by a fixed percentage, it always hurts the poor and middle class the most. The rich are flexible, have liquidity and have enough high powered advice to minimize the impacts of any new regulations.

3. There will be a whole new set of technocrats, regulators and traders that will build a niche for themselves and extract their piece of the pie.

4. As of today, the clarity of this market leaves a lot to be desired. If I buy an Oil or Gold contract, whether I'm hedging or merely speculating, there is a real asset with real supply and demand underlying the trade instrument. With Carbon Offsets, it's the wild west out there. For a market to be legitimate there needs to be a set of standards and some clarity as to what is actually being traded.

5. The whole thing smacks of selling indulgences.

6. There will be a massive transfer of wealth when this gets rolling. My bet is that a large portion of this money will end up in the hands of fraudsters and crooks.

7. I doubt the amount of actual carbon emissions will be curbed.

8. I also doubt that much of this emitted carbon will ever be removed from the system in any meaningful and permanent way.

9. Those people who fantasize about a world government will be one step closer to their goal.

10. The developing world is going to take this on the chin. Some of us may hold up our noses at coal-fired power plants, but in some places it's coal or living in the dark with no electricity or running water.