Counterfactual

at 11:35 PM

When I first heard about Cap-and-Trade -- the plan where a company can emit greenhouse gasses up to a point (the cap) then offset its emissions by investing in 'un-pollution' somewhere in the world (the trade) -- well I thought, "This sounds like it's worth a shot." But after some looking into it, I have my doubts.

The trade part is tricky. Here's an example: I have 2 kids. Each will likely put 700 metric tons of carbon into the atmosphere in their lifetimes. Now the good news is that I was going to have 10 kids, but recently decided not to, thus sparing the atmosphere another 5600 tons of carbon. At $22 a ton on the carbon market, that's $123,200. Ka-ching! I'd like that trade certificate, please. Thank you very much!

"But wait," you say, "How do you know not having 10 kids will actually cut so much carbon emission?" Well, I don't. In fact, I can't. I've asked you to invest in a counterfactual, not the real world. Maybe me and my 10 kids would be carbon neutral.

It's breath-taking to realize that the fastest growing market in the world, the Cap-and-Trade market, is based on investing in counterfactuals. But there's another even more worrisome problem with Cap-and-Trade. For a carbon offset project to earn a trade certificate, it has to show that it won't happen without the investment. So it can't be a project that is required by law (for instance, scrubbers on a smokestack) because that will happen anyway. Who's going to invest in that?

But this creates an argument to not pass legislation aimed at reducing carbon emissions. Such laws would rob the 'un-pollution' industry of opportunities to attract investment. I'm all for free market forces driving innovation and risk-taking. But Cap-and-Trade INSTEAD of legislation? No thanks.

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Legislation is there to protect us from the excesses of powerful interests. Speaking of excess, do you think Wall Street will trade counterfactuals more responsibly than they did mortgages? Cap-and-Trade is the Duck-and-Cover of our day. Putting your head between your knees can't save you from a nuclear blast. And throwing money at a counter-factual is not going to stop global warming.

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With a Perspective, I'm Andrew Page

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