Hopefully, I'm not alone in being fundamentally confused and a little ignorant about what the Emissions Trading Scheme legislation rejected by the Australian Senate this week would've brought about. Putting a cap on the amount of carbon pollution and letting the market price this carbon, seem to be the basics of the scheme.
Markets and prices, huh? The ABC's radio and sometimes TV economics correspondent Stephen Long was last night discussing some of the dangers of such a scheme on Lateline. Long observes that there are already derivatives in the carbon trading markets, as investors seek to "manage risk" by hedging, securitizing, selling short, and so on, products based in these markets. He worries that the practice of investing in carbon offsets--carbon sinks or tree plantations that putatively function to balance pollution elsewhere--needs the sorts of governmental compliance, accreditation and oversight regimes that were globally absent in the lead-up to the 2007 GFC, to ensure that such carbon-offsetting actually achieves its aim of capturing carbon. Without such oversight there is the distinct danger that markets in offsetting will develop their own version of sub-prime mortgages: unsustainable carbon sinks, plantation forests that are fronts for pulp materials, land-clearing to make way for such offset plantations which are stages in plans for other forms of development, or simply forests that exist only on paper.
It makes sense then, that Murdoch's Neoliberal economist--Michael Stutchbury--supports the pricing of carbon, even though he is a trenchant critic of the Neoliberal-post Social Democracy Rudd Government which failed to get the upper house numbers to push through their Emissions Trading Scheme earlier this week; a scheme with carbon pricing at its centre.
Long argues that there are either going to be huge compliance costs if carbon trading is to be comprehensively regulated, or we could well see a crash triggered by the collapse in the sub-prime carboffset market.