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Death to the Chicago Climate Exchange ($7.40 to a nickel per CO2 ton, the market has spoken)

By William Griesinger
November 18, 2010

“One of the keystones of the Climate Change alarmist movement was its audacious attempt to create a functioning market by monetizing the atmospheric gas known as CO2…. Certainly, gaming the system has always been at the top on the agenda of the new green eco-trader.”

– Patrick Henningsen, “The Great Collapse of the Chicago Climate Exchange,” 21st Century Wire, August 28, 2010.

We were tipped off by the August 28th headline, “The Great Collapse of the Chicago Climate Exchange,” by Patrick Henningsen, editor of 21st Century Wire. And now it is official as reported by Chicago Business, Fox News , and Crain’s Chicago Business (sub. required): the Chicago Climate Exchange (CCX) is dead. Trading in carbon-dioxide (CO2) emission contracts at CCX has basically ceased with member emissions-reduction agreements expiring at the end of the year.

The death rattles have come with each price decline per ton of carbon credits. Compared to $7.40 per ton in May 2008 when cap-and-trade legislation was eagerly anticipated, CCX’s market price tanked to $0.10 per ton in August 2010 and half that last month.  So much for a contrived opportunity in a pretense  market.  What a difference a couple of years, a few scientific scandals, and old-fashioned political gridlock make.

Projections of carbon fortunes were based on the same hyped speculation by the IPCC that the planet’s temperatures would suddenly rise (PHOTO: Patrick Henningsen)

Reuters reported in August that the CCE was facing significant layoffs and an operational scaleback only a few months after being acquired by publicly traded Intercontinental Exchange Inc (NYSE: ICE). ICE acquired CCX earlier this year in an all-cash deal totaling nearly $600 million, a shocking valuation given CCX’s lack of traction and a paucity of sustainable revenue (more on this later).

ICE is a nearly $1 billion revenue company and leading global operator of regulated futures exchanges and OTC markets for agricultural, credit, energy, currency and equity index contracts. In other words, ICE is a real-deal commodities exchange as opposed to the faux market for CO2. As an example of ICE’s scale, its Futures Europe unit clears trades in nearly half the world’s crude and refined oil futures, according to SEC filings.

Left Environmentalist Lament

It is fitting that real market forces have imposed their discipline on this Enron-like market, leaving climate alarmists in spin mode. Howard Learner, president of the Environmental Law and Policy Center in Chicago, told Crain’s: “What CCX pricing sadly demonstrates is that unless there’s a regulatory cap on emissions, there’s no real market.” Well there you go! Learner’s admission describes rent-seeking in a nutshell.

Fred Krupp, president of the Environmental Defense Fund, is equally discouraged. “Economy-wide cap and trade died of what amounts to natural causes in Washington,” he stated in regard to CCS’s demise. Natural causes? What is so unnatural about the outcomes of freely acting buyers and sellers in a market? Is coercion natural? Why is it a perversity where the public and politicians gives a thumbs down to climate-scare fakery, Mr. Krupp?

Criticism of cap-and-trade is not confined to so-called “global warming skeptics.” As I pointed out in my June 9 post, mainstream environmental groups such as Friends of the Earth (FOE) have harshly criticized the proposed Kerry-Lieberman cap-and-trade legislation, issuing the scathing Ten Ways to Game the Carbon Market.

FOE’s guide concludes “carbon offsets are especially prone to corruption and fraud,” detailing “Ponzi Carbon” schemes among other derogatory indictments of cap-and-trade. Further, a FOE senior policy analyst details how many of the scams are already taking place today under the European Union Emissions Trading Scheme (EUETS). Why would an emissions exchange in the U.S. be any different? The answer, of course, is it wouldn’t.

Joe Romm at Climate Progress (see Appendix below) even panned cap-and-trade sausage-making before his betters at Center for American Progress told him to play ball with Obama et al. Romm did not mince words:

This proposal is a dead end — and an even deader starting point. Shame on NRDC, EDF, and WRI for backing it.

With this proposal, the U.S. Climate Action Partnership has officially made itself obsolete and irrelevant.

Romm caved and joined the losing team–and just maybe sold his alarmist, interventionist soul to the devil. James Hansen, on the other hand, would have nothing of the cap-and-trade mirage.

Rent-Seeking: Risky Business

The struggles of CCX provide yet another example of the pitfalls in following a “rent-seeking” model of doing business. Not only does it add considerably to the cost of doing business–government affairs work does not come cheap—but the payoffs are fickle.

Rent-seeking opportunists look to obtain a politically-created shield of protection from the normal competitive forces of real markets where success is measured on a firm’s ability to satisfy consumer-driven needs. Rent-seekers accomplish this via favorable political arrangements, legislative mandates, government subsidies and other protections resulting in the creation of distorted and artificial market conditions that would otherwise not exist absent such political manipulation.

Though history is replete with examples of rent-seeking enterprises (think the transcontinental railroads or early U.S. shipping industry per author Burton Folsom’s Myth of the Robber Barons), it’s difficult to imagine a more egregious rent-seeking scheme than that concocted around the “trading” of carbon and offset credits.

Additionally, the CCX version of rent-seeking included not only the usual government suspects but also multiple financial market players all hoping to cash in at the intersection of government mandated emissions limits and the trading platform believed capable of carrying it out.

One of the keystones of the Climate Change alarmist movement was its audacious attempt to create a functioning market by monetizing the atmospheric gas known as CO2,” according to 21st Century Wire’s Henningsen, labeling it “a fantasy casino based on the doctrine of pure science fiction. He maintains, “Certainly, gaming the system has always been at the top on the agenda of the new green eco-trader”…




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