Re: US policy Was Re: [asa] Subglacial Water System Moving

From: David Opderbeck <>
Date: Fri Feb 23 2007 - 11:26:39 EST

*Note the world economy works just fine with multiple currencies and
multiple stock exchanges.*

Interesting point, but capital is liquid for a bunch of reasons: (a) Yuan
can be translated into Dollars can be translated into Euros can be
translated into Yen via very efficient currency exchanges; (b) the
global exchange markets discipline local monetary policy; and (c) capital
can be applied to any productive use indiscriminately.

I don't think any of these conditions could obtain for emissions credits.
If I want to buy dollars with my yuan, a bank can look up the exchange rate
(currently 0.129), which is based on various economic indicators including
the state of the respective economies, inflation, etc. Based on these
indicators, the bank will buy my yuan and give me dollars, which are legal
tender in the US. The bank participates in this market because it receives
transaction fees and because it views the yuan as an investment (the
exchange rate is likely to become more favorable to the yuan) or a hedge
(the dollar is likely to remain strong agains the yuan, but this isn't

If I wanted to do the same with emissions credits, we would need private
banks that would be willing to take the risk of exchanging, say, Chinese to
U.S. credits and vice versa. It seems to me that this would be a much
bigger risk for a bank than the risks involved in currency trading. A
currency isn't likely to vanish unless the nation backing the currency
implodes. A local emissions trading scheme, however, could be wiped away by
a legislative body (or in the case of quasi-oligarchies like China, by some
ruling party fiat) quite easily. I would guess that, if a private bank were
to participate in such an exchange at all, the transaction fees would
reflect such a high risk premium that the market wouldn't be efficient.

There is also the problem that emissions credits are unlike ordinary capital
in that they can't be used indiscriminately for any purpose -- although I
suppose markets could develop in which credits are exchanged for cash.

This is off the top of my head though. Any research links into whether an
exchange without central control would work for emissions credits? (I'm
trying to think of a better parallel than currency markets -- maybe real
estate markets?)

On 2/23/07, Rich Blinne <> wrote:
> Before I start a side comment. Janice's silence is deafening.
> On 2/23/07, David Opderbeck <> wrote:
> >
> > *then the U.S.
> > could simply say because sovereignty is our ultimate interest we will
> > run our own carbon market with deeper cuts than we would have with in
> > a linked market.*
> > **
> > I don't know if sovereignty is the overriding interest in the real
> > political economy of this. Probably not -- more likely it's oil money. But
> > sovereignty is my overriding concern about Kyoto, and I think it's the
> > biggest concern on a serious policy level.
> >
> > There are at least a couple of reasons de-linking the US won't work.
> > One is economic: since the US is one of the few major polluters, taking the
> > US out will distort the global market such that there would be no
> > functioning global market. Another is political: why would other reluctant
> > players such as China agree to give up sovereignty if the US isn't willing
> > to do so? It's a prisoner's dilemma.
> >
> > I haven't looked into this, but I wonder if there is a way to facilitate
> > an emissions market through GATT. The sovereignty concern regarding Kyoto
> > is particularly important, IMHO, because Kyoto is a United Nations
> > Convention. The UN has done lots of good in the world and it (or something
> > like it) is a necessary organization. (Too bad the US invaded Iraq rather
> > than waiting for UN sanctions to work). But, there's no denying that the UN
> > is not always friendly to free markets and democratic self-governance, and
> > that too much power in the UN is vested in totalitarian nations ( e.g.,
> > China). GATT, in contrast, IMHO, is a forum that has worked reasonably well
> > because it is inherently pro-market and has a more limited mandate.
> >
> Note the world economy works just fine with multiple currencies and
> multiple stock exchanges. It looks pretty certain that there will be
> multiple carbon exchanges where you could then have exchange rates between
> them like we do with currencies. If the UN refuses to do this, that market
> will get created by the private sector -- I guarantee it. Here's evidence
> that this is already happening (China entering the carbon market without
> U.S. renouncing sovereignty.):
> > Khalid Malik, head of the UN office in China, said on 6 February that
> > the IEA's forecast was based on old figures and that UN was working with the
> > Chinese government on an update assessment of its emissions.
> >
> > Malik was speaking on the sidelines of a conference launching a new
> > trading scheme for carbon credits in Beijing. The scheme, a joint project
> > between the UN Development Programme and the Chinese government, *will
> > compete with others in Europe and the US.* It will seek to take a share
> > of the multi-billion dollar global market which trades emissions credits
> > granted by the Kyoto Protocol in exchange for investment in green projects
> > in developing countries.
> >

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Received on Fri Feb 23 11:27:08 2007

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