Cap and Trade: Yet Another Scam

By
Real Estate Services with Timu Corp - CEO, ActiveRain - Co-founder

I'm a couple weeks behind this one, as all the media focus lately has been on the health care bill.  I've had several interesting discussions around cap and trade lately that inspired me to put my thoughts down into a blog post.

Disclaimer

I consider myself a fairly environmentally conscious person, I do believe based on data and observations human activity is creating a huge and very negative impact on the global climate.  I'm extremely worried about the this planet over the next several decades.  To me the health of this planet overrides any economic impacts of decisions, but at the same time I believe doing what is right for the planet can be done in ways that is also very economically beneficial in the long run.  I'm not writing this post to debate these points...

Cap and Trade is a Wolf in Sheeps Clothing

The idea behind the bill sounds fine based on the highest level talking points, incentivize investment in alternative energy and at the same time disincentivize the polluters.  Once you look under the hood though, the best phrase I can use to describe it, is "financial scam".

What got me looking at, and thinking about the impacts of the cap and trade bill was when I noticed the biggest supporters throwing the most lobbyists and money behind it was not the alternative energy industry but the Wall Street investment banks.  Why?

It comes down to the whole "trade" part of the bill where carbon credits received can be traded/sold to carbon producers.  It's been estimated that this could create the largest derivatives market, larger than the CDS's (credit default swaps).  These credits would trade on an exchange (partially owned by Goldman Sachs) and would be a multi-billion dollar windfall for the investment banks. 

Since the number of carbon credits available is fixed, and is reduced each year this creates a made in heaven market for large traders and speculators (hedge funds, investment banks).  The carbon bubble will become the new credit bubble, as speculators suck productive money from the system.

Destructive Impacts on the Alternative Energy Industry

I've got a lot of friends involved in the alternative energy industry who believe this bill is a windfall for the industry and will spark the next big revolution in alternative industry.  Be careful what you wish for, the long term impact on the industry may in fact be very destructive.

It's analogous to what happened with the housing market and credit bubble in 02-06 with all these new fangled mortgage products, CDO's, CDS'.   Everybody touted these products as being great for the housing industry as they made housing more "affordable" and accessible to the masses.  We now realize the truly destructive nature of these products, which incidentally were created by the same Wall Street banks behind the cap and trade bill.

Particularly as the price of carbon credits in driven up by speculators, it will become extremely profitable for companies producing them.  The catch is the total number of credits is limited and there really isn't a direct tie between a technology being beneficial long-term, and producing carbon credits.  You will see hundreds of companies pop up, simply built to capture huge profits from carbon credits, with technologies that otherwise would not make any sense. 

In much the same way as imprudent lenders pitching alternative mortgage products forced prudent lenders out of the mortgage business, viable alternative energy technologies will be squeezed.  Investment will be redirected from the productive to the speculative, with very negative consequences.  Of course this bill is practically designed to create a "carbon bubble", who's popping in a few years, will sow yet another round of economic destruction laying waste to a whole industry while the pig men walk away with their sacks of money.

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Re-Bloggged 4 times:

Re-Blogged By Re-Blogged At
  1. Lenn Harley 07/28/2009 03:15 PM
  2. Donald Bradbury 07/28/2009 09:00 PM
  3. Fran Gatti 07/29/2009 12:07 AM
  4. Gabe Sanders 07/29/2009 06:56 AM
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Rainer
280,523
Daniel J. Hunter
REALTOR®

cap and trade has one gaol.  To raise the cost of conventional energy so the more expensive green alternatives are affordable.  Anybody see what happened to the cost of energy in countries that adopted Kyoto?  some in Europe pay 20% higher for their energy

 

this is nothing more than artificially inflating prices of one item, to make an alternative more feasible.  It is Bad Law

August 03, 2009 12:54 PM
Rainer
2,785
Emily Knell
Realty One Group

I agree with Brian Brady, you need to take a hard look at natural (non human intervention) occurences, like VOLCANOS, DEAD VEGETATION, ANIMAL FECES, DEAD ANIMAL CARCASSES and 2/3 of the surface of the earth the OCEANS & their own emissions of Carbon Dioxide before you start crying "MAN BEAR PIG". (Southpark reference in case you didn't get that) it's a great episode, I suggest you YouTube it.

It hasn't been determined by the whole of the scientific community by a long shot that global climate change has anything to do with what humans do.

First you need to explain to me the "little ice age" and the "warming period" that occured 100's of years ago before Refinaries, gas autos, nuclear bombs, airplanes etc. 

Don't get me wrong, I do recycle & I do think L.A. would look much nicer minus the smog.

Wall Street will look for anything to make money with, any scam we humans are suckered into.

August 07, 2009 05:46 PM
Rainmaker
298,676
Brian Brady
VA Home Loans/San Diego
San Diego VA Home Loans/858-777-9751

I can sell my credit to someone who is producing 75 million tons. Does anybody else see the point we are missing?

Cap and Trade may be an incentive to pollute and pay, Michael.  I've often said that the parking ticket's at the beach are more reasonable than the parking fees (and they just put them on your account)

Don't get me wrong, I do recycle & I do think L.A. would look much nicer minus the smog.

Exactly, Emily.  I'm a conservationist; I would never think of littering on someone else's property but I think it's reprehensible for someone to tell me what I can and can't do with mine (post facto)

August 08, 2009 11:21 PM
Rainer
20,565
Jami Van Den Bogaert
RE/MAX House of Brokers

I have been aware that this was no good and have been emailing my reps for a while now. Thank you for bringing it attention on a post with so many viewers such as this.

September 01, 2009 11:17 AM
Anonymous #73
Anonymous
Beatrice
Ppl like you get all the brains. I just get to say thakns for he answer.
October 30, 2011 12:03 PM
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Rainer
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Matt Heaton

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Additional Information

My ramblings about growing ActiveRain, the real estate industry and something I follow very closely, credit markets.  Why "The ActiveRain Addiction"?

  • My latest startup project FossilEra
  • Starpires - A Strategy Game I Designed