Skip to content
Menu
REDD-Monitor
  • Start here
  • About REDD-Monitor
  • REDD: An introduction
  • Contact
REDD-Monitor

“Subprime Carbon?”: New Friends of the Earth report

Posted on 10 April 200921 May 2012
Tweet about this on Twitter
Twitter
Share on LinkedIn
Linkedin
Share on Facebook
Facebook
Email this to someone
email

Subprime Carbon?: New Friends of the Earth report

The carbon trade is a derivatives market which may eventually be bigger than the credit derivatives market which collapsed so spectacularly in the current financial crisis, notes a new report by Friends of the Earth U.S.

Despite this, most proposed climate legislation bills rely on cap-and-trade systems which fail to address the complexities of the carbon market and fail to address carbon trading as a massive new derivatives market. FoE U.S. warns of a “giant regulatory gap”. Regulation of secondary carbon markets, which are far larger than primary markets and are dominated by speculators, is effectively non-existent.

The report, “Subprime Carbon? Re-thinking the world’s largest new derivatives market”, can be downloaded here.

The carbon markets already have all the ingredients for a subprime carbon market, in particular futures contracts to deliver carbon that carry a relatively high risk of not being fulfilled. With offsets projects, sellers can promise to deliver carbon credits before they are actually issued to a project, or before the emissions reductions have been verified. Financial innovation, such as complex securitized products, could spread subprime carbon throughout the financial system.

The report, written by Michelle Chan of FoE U.S., notes that

    “The buying and selling of carbon (allowances and credits) is fundamentally derivatives trading. Currently, most carbon is sold as futures or forward contracts, a type of derivative. These contracts contain promises to deliver carbon allowances or credits in a certain quantity, at a certain price, by a specified date. Today’s carbon markets are small, but if the United States adopts carbon trading on the scale envisioned by most federal cap-and-trade bills, carbon derivatives will become what Commodities Future Trading Commissioner Bart Chilton predicted would be ‘the biggest of any derivatives product in the next four to five years.’”

FoE U.S. calls for regulation of the carbon markets to be explicitly included in the current efforts to reform Wall Street, with measures to prevent the spread of subprime carbon “to ensure the environmental and financial integrity of this emerging, exotic derivatives market”. In particular, FoE U.S. “strongly endorses prohibiting offsets as the best way to prevent subprime carbon” but also recommends proposals which fundamentally re-design carbon markets, setting stable prices and maintaining firm caps.

The report highlights trading in forest carbon as a potential source of subprime carbon:

    “Subprime carbon can also come from projects that use controversial methodologies to verify a project’s GHG savings. Some offset projects, such as those which seek to protect forests as a means of sequestering carbon, are by nature difficult to verify. For example, even with advances in satellite imaging, it is difficult to verify with accuracy how many tons of GHGs were sequestered by preventing a tract of land from being deforested or degraded. ”
Tweet about this on Twitter
Twitter
Share on LinkedIn
Linkedin
Share on Facebook
Facebook
Email this to someone
email

Related

Leave a Reply Cancel reply

SUBSCRIBE!

Enter your email address to receive notification of new posts.

Recent themes
Natural Climate Solutions
WWF's conservation scandals
Aviation and offsetting
Conservation Watch

REDDisms

“I think there is general agreement that in Copenhagen significant reforms of the CDM, uh Collective Development Mechanism, ah Cooperative Development Mechanism, have to be implemented . . . I agree with ya.”

— Al Gore, January 2009

Recent Posts

  • Graeme Biggar, Director-General of the UK’s National Economic Crime Centre: “There is not a sufficient deterrent for fraudsters and there is insufficient recourse for victims”
  • Coronavirus notes #7: How the Colombian government is rolling back social and environment safeguards during the pandemic
  • Peru cancels its World Bank FCPF Carbon Fund programme
  • The World Bank Forest Carbon Partnership Facility’s latest hot air scam: Retroactive credits
  • Some questions for Frithjof Finkbeiner, founder of Plant-for-the-Planet

Recent Comments

  • Arthur Charles Claxton on Graeme Biggar, Director-General of the UK’s National Economic Crime Centre: “There is not a sufficient deterrent for fraudsters and there is insufficient recourse for victims”
  • Chris Lang on Blackmore Bond collapse: Financial Conduct Authority is “responsible for every penny lost”
  • Sam on Blackmore Bond collapse: Financial Conduct Authority is “responsible for every penny lost”
  • barrywarden on Coronavirus notes #7: How the Colombian government is rolling back social and environment safeguards during the pandemic
  • Chris Lang on Why has the Financial Conduct Authority not taken down the website of the clone scam “Good Investment Advisors”?

Issues and Organisations

AB 32 Boiler rooms Bonn California Can REDD save ... ? Carbon accounting Carbon Credits Carbon Offsets CDM Conservation-Watch Conservation International COP21 Paris Deforestation FCPF FERN Financing REDD Forest definition Fossil fuels FPP Friends of the Earth FSC Greenpeace Guest post ICAO Illegal logging Indigenous Peoples Natural Climate Solutions NGO statements Plantations Poznan R-M interview REDD and rights REDD in the news Risk RSPO-Watch Safeguards Sengwer Sustainable Forest Management The Nature Conservancy Ulu Masen UN-REDD UNFCCC World Bank WRM WWF

Countries

Australia Bolivia Brazil Cambodia Cameroon Canada China Colombia Congo Basin region DR Congo Ecuador El Salvador European Union France Germany Guatemala Guyana Honduras India Indonesia Kenya Laos Luxembourg Madagascar Malaysia Mexico Nicaragua Nigeria Norway Panama Papua New Guinea Paraguay Peru Philippines Republic of Congo Sweden Tanzania Thailand Uganda UK Uncategorized United Arab Emirates USA Vietnam West Papua
©2021 REDD-Monitor | Powered by WordPress and Superb Themes!