Market Failure

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

The concept behind the new Chicago Climet Exchange (CCE)is
mind-boggling.  It  ranks up there with an exchange to trade terroism
prospects.  The idea is to create a market for member compaies and
governments to trade rights to emit gases associated with global warming.

The CCE got off to an ambiguous start yesterday in a dry run for full
range trading on October 31, 2003.

According to the New York Times, as reported by BARNABY J. FEDER: the
prices paid by companies like Ford Motor, DuPont and American Electric
Power for carbon dioxide emissions averaged less than $1 a metric ton.
That was one-tenth the price of over-the-counter trades of carbon
dioxide emissions allowances in Europe.

Experts had several possible explanations for the pricing, saying that
it will take many months to know if the low prices reflected the
traditionally cautious view that traders take toward new financial
products, or a justifiably optimistic disagreement with Europe over the
cost of reducing emissions, or flaws in the concept of the exchange.

Greenhouse gas trading is patterned in part on successful markets for
trading other air pollutants, most notably sulfur dioxide. In such
markets, polluters that have trouble meeting regulatory limits on
emissions buy allowances from other companies that can reduce pollution,
thus helping to find the cheapest way to reduce overall emissions.

Greenhouse gas emissions are not limited by any regulations in the
United States and there are doubts that a market based on voluntary caps
like those adopted by the Chicago Climate Exchange can succeed.

"It's going to be at best a fantasy baseball sort of exercise unless
real emissions caps are in place," said Jon Coifman, a spokesman for the
Natural Resources Defense Council, an environmental group that has
supported emissions trading for other pollutants.

The 21 members of the exchange are committed to cutting their greenhouse
gas emissions annually by 1 percent, but there is no threat of
government prosecution or fines if they fail.

The auction yesterday was intended to help members estimate prices and
establish trading strategies for trading, scheduled to begin Oct. 31.
"It's going to take five or six years to really mature," said Dr.
Richard Sandor, chairman and chief executive of the exchange.

The exchange's voluntary approach has attracted support from the Bush
administration, which is opposing proposed legislation in Congress
calling for mandatory caps.

Environmental consultants said that although it was a good sign that the
exchange sold all 125,000 metric tons of allowances it put up for
auction, the low prices raised questions about whether the market could
serve its function of encouraging efficient investment in cutting
greenhouse emissions.

"At a dollar a ton it's not really a price suggesting it's worth it to
invest in abatement," Benedikt von Butler, chief greenhouse gas broker
for Evolution Markets, said.


Below are some companies that trade emmisions:


This is the Cantor Fritzgerald firm that made news in the WTC on 9-11.
http://www.emissionstrading.com/


Grexel provide business infrastructure solutions that enable free market
mechanisms for green energy and emission reductions.
http://www.grexel.com/


Also the book on emmission trading:
Emissions Trading : Environmental Policy's New Approach
by Richard F. Kosobud (Editor), Douglas L. Schreder (Editor), Holly M.
Biggs (Editor)

http://www.amazon.com/exec/obidos/ASIN/0471355046/interactiveda05-20/002-9141271-2464834