NCPA - National Center for Policy Analysis


July 31, 2006

The trading of greenhouse gas allowances, also known as carbon trading, may be capitalism's best answer to the problem of global warming, says the New York Times. 

In a carbon-trading scheme, you must pay to pollute: price tags are placed on greenhouse gas emissions and then the market (not the government) essentially figures out the cheapest, most efficient way to reduce them.

In the United States, Richard Sandor's Chicago Climate Exchange is trying to become a major trading venue with commissions worth many millions.  For the time being, Sandor's operation is somewhat more modest:

  • The exchange, also known as CCX, opened for business in December 2003, after raising $25 million in a public offering on the Alternative Investment Market, a part of the London Stock Exchange.
  • By May of this year, more than six million carbon allowances had been traded on the exchange, and the price for the allowances was hovering between $3 and $5 per metric ton of carbon dioxide.
  • CCX now has more than 175 participants, including corporations like American Electric Power, Ford, Motorola, DuPont and IBM, as well as the state of New Mexico and six American cities, including Portland, Ore., and Oakland and Berkeley, Calif.
  • Sandor says that in 2004, the members of CCX reduced carbon emissions by 30 million metric tons, roughly equivalent to the yearly emissions of two big coal plants.

Some analysts, including Sandor, contend that it's just a matter of time before the United States adopts some sort of national emissions-trading scheme. Pressure is building on several fronts: environmentalists are demanding action on global warming, investment banks covet the arbitrage opportunities that a carbon market affords and international corporations seek long-term regulatory certainty.

Source: Jeff Goodell, "Capital Pollution Solution?" New York Times, July 30, 2006.

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