After Climategate, Should Savvy Investors Short Carbon Credits? (PJM Exclusive)
One risk is that you are too late to the party. Maybe the right time to bet against these credits or companies isn’t now, when the effects of Climategate and the failure of Copenhagen are already priced in. The time to do it would have been back in 2007 or 2008, when values were frothier.
Another risk is that even if cap and trade — “cap and tax” to opponents — doesn’t pass Congress, there are already markets for carbon credits outside of America. Some European Union countries have ratified the Kyoto treaty and are trading these credits, though in 2009 the EU handed out more free carbon allowances than industrial plants needed to comply with the emission caps. Other “voluntary” offsets will still be demanded by guilty private-jet users or companies seeking the public relations benefits of greening their image.
Some of the carbon-market companies also make markets in pollutants other than carbon that are already governed by either voluntary or mandatory regulations. The companies make the case that they work with industrial firms to reduce pollution in other ways than selling offsets. “Offsets is a small portion of our overall program,” said the director of communications at the Chicago Climate Exchange, Brookly McLaughlin. She said that carbon offsets amount to just 15% of the pollution reductions achieved by the climate exchange since 2003, with the rest accounted for by conservation gains by member companies who do things like increase efficiency or switch fuel.
In November of 2009, the Chicago Climate Futures Exchange — which, like the Chicago Climate Exchange, is a subsidiary of Climate Exchange Plc — launched a futures contract called the CFI-US-O. Each contract represents 1,000 metric tons of carbon dioxide. But there are limits on positions — 4,000 contracts — and trading volume has been low. Unless you have a special flair for it like Hillary Clinton, futures trading can be risky.
Finally, there is the risk that those betting against cap and trade in the financial markets may be miscalculating the chances in Washington. After Scott Brown’s election in Massachusetts, the conventional wisdom was that a health care overhaul was dead, but President Obama and congressional Democrats passed it anyway. After Climategate and Copenhagen, the conventional wisdom is that cap and trade is dead. But there are powerful forces still pushing this in Washington — not only the environmental lobby, but even J.P. Morgan Chase, whose CEO, Jamie Dimon, wrote in his annual letter to shareholders that the company is “a leader in sourcing, developing, and trading emission-reduction credits, primarily through our investments in ClimateCare and EcoSecurities.”
All it may take for the cap and trade idea to make an ObamaCare-style recovery is a bad summer heat wave in a media capital like New York or Washington. No matter that even some of those who believe that man-made climate change is a real problem think a gas tax or technological breakthroughs might be better ways to solve it. Betting against cap and trade is a wager that President Obama and a Democrat-controlled Congress will somehow resist the temptation to impose a vast new regulatory regime on energy consumption.
Good luck with that bet.
This is a political market not a free market. I wouldn’t go near this thing or have anything to do it, a normal market is hard enough to deal with never mind one where political manipulation will be/is the norm.
All markets, and not just the “carbon” market, have become “political markets,” run just like the Shanghai stock market; it’s the new reality under the new regime: “free markets” are dead.
“After Scott Brown’s election in Massachusetts, the conventional wisdom was that a health care overhaul was dead, but President Obama and congressional Democrats passed it anyway.”
The silly Democrats who listened to the rose colored predictions of Stanley Greenberg and other Democratic Party gurus probably have learned their lesson. Their poll numbers have continued to drop after the passage of the health care bill. These folks won’t have the guts to also try and ram cap and trade legislation down our throats. Obama is now a marginalized president who will live and die by the executive order. Only the bluest of elected officials will support him. The odds are minimally 50/50 that the Democrats are no longer a national party. Obama is destroying its remaining chance being a viable entity in the purple and red state areas of the United States.
I should add that I purchased a copy of Ira Stoll’s book on Samuel Adams some time ago. Unfortunately, I barely looked at it. That will be rectified later today. Sorry about that.
I agree that the Congress probably won’t do much with the MMGW hot potato. However, the EPA is trying and just may succeed. There are problems with action by the EPA, but we probably won’t know much for several months.
I would invest in concrete (very solid) and hot air balloons (almost certain to go up).*
*slinks away, ashamed of retelling an old joke.
I agree with Glass’s comment – never trust a political market. Inevitably, in the long term, such a market will crash; but with political support that long term could be a decade or more.
Excellent article. Hidden agendas eh? $$$$’s etc. And that fraud Dr Pachauri
no wonder he would like to see the UN IPCC treaty be signed. AGW is a fraud,
a fraud, scam, you name it.
The science is faulty (being polite) and all those involved should be called to account particularly if they have a conflict of interests either receiving funding to prove AGW or in league with clean energy or CCT investments. A conflict of interests or taking money under false pretenses.
Malcolm Turnbull MP for Wentworth electorate in Sydney will not be contesting the next General Election. There was rumors that Turnbull the ex Goldman Sachs Australian director had investments in CCTs. Only a rumor, but pressure
might have been put on him to prove any disassociation with Goldman Sachs.
He was threatening to cross the floor to vote with the government (labor) to support an ETS bill.
Well if CO2 isn’t the demon in climate change, that it isn’t why tax it,
unless you have Carbon credits to sell. It wouldn’t cut CO2 emissions, just
make those who produce them buy permits etc., and who pays … you and I?
The biggest scam against humanity I have ever heard of, those responsible like
Pachauri, Jones, Mann, Gore, Hansen (particularly) Schneider should be called
to account, particularly Pachauri who has a conflict of interests. So has Gore of course.
A market based on nothing but hot air, literally. A bubble of nothing to put subprime derivatives to shame.
You are far better off betting against the US treasury via an ETF vehicle like the TBT. Just like Carbon Credits, it is only a matter of time.
Cap & Trade, aka: Tax & Steal, is Social Control at it ugliest. It would have negatively affected the poorest the most, and everyone else at some level. All for money and power, based on lies.
Let this be a lesson to everyone not the listen to Environmental Extremists, they don’t have anyones best interests in-mind, except their own.
Al,Gore is a Fraking multi-millionaire on the world’s gullibility. Ten years ago, he was having trouble making his mortgage; now his energy bill rivals that of third world nations.
The Sun, balanced by water vapor, has driven Earths climate for billions of years; what changed? why did anybody buy into this CO2 trace-gas nonsense in the first place?
1) Money
2) Power
3) Mass Naïvety (being kind, very kind)
Any Questions?
It’s too late, we’ve missed the train on shorting this crap.
Well, You will have to find the brokers willing to extend themselves in such a high risk venture. I don’t think the volume is there to pull off a big short derivative like this.
#8: I’m not a futures expert but my understanding is that if you spend $1000 to short stock and the value eventually reaches zero, you would make just as much money as you would if you had shorted when said stocks were trading at their highest. Is that correct? If so, the risk in shorting is more on the upside than downside; if these stocks rebound to their pre-2010 levels, investors will lose their shirt 3 or 4 times over.
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