The carbon market has been attracting headlines recently on Reuters for the massive profits some speculators and polluters are making from these emerging schemes.

These markets are meant to help fight climate change by putting a price on greenhouse gas emissions. But are these profits helping drive cuts in those gases? I would argue that often the answer is “no”.

They can even make the problem worse.
Take for example carbon trading under the Kyoto Protocol. A U.N. report this month says that under this scheme factories in China, India, South Korea, Mexico and Argentina are getting up to ten times more money than they actually need to eliminate emissions of very powerful greenhouse gases called HFCs.

These carbon offset incentives mean factories will now actually lose money if they invest in widely available technologies to cut these emissions. Not exactly the outcome you’d want from an environmental policy.
In addition, speculators who put these Kyoto deals together earn an additional mark-up, potentially worth billions of dollars by 2013. Won’t much of these profits go to the speculators and their investors, not to developing countries, or to help the planet?

Windfall profits are also being earned under a separate scheme, the European Union’s carbon market. Power companies, Europe’s biggest polluters, will earn profits of nearly $30 billion a year directly as a result of the scheme, a Reuters report showed on Friday.

The flaw won’t be corrected until 2013 at the earliest — nine years into the scheme.
Utilities are earning these profits by perfectly legally passing on to electricity consumers the price of emissions permits which they get for free. They are treating those permits as an asset, and costing them like that when they redeem them for producing emissions.

Analysts differ over whether the windfall will be invested at all in finding new sources of low carbon energy, and so tackling climate change, or simply go to the companies’ shareholders.
So – is it too late to try an alternative policy? A carbon tax, for example? That’s the big question. A tax may be simpler, more transparent. Perhaps too often it’s dismissed as unworkable, because the public are assumed to be against.