Nicholas Stern, former Chief Economist of the  World Bank believes that climate change is the greatest  market failure the world has seen and yet rather than introduce stricter regulation to rein in carbon emissions in line with Kyoto agreements our Governments have opted instead to allow a free market in emissions or carbon trading to develop in the hope that the shiort term profit motive will be a much surer way of achieving greater reductions in emissions at the least social cost.

Thats a huge leap of faith given that unregulated market forces created the global warming problem in the first place.  

The basic principles behind the ' carbon trade'  are straightforward enough, Governments award carbon emissions permits or allowances to the worst polluters allowing carbon emissions up to a fixed or capped level and firms can trade excess permits , so if a firm reduces  its emssions well below its permitted level it can sell its permit to another company that isnt able to keep to its capped rate. Firms that reduce emissions profit, firms that dont have to pay to pollute more.

The carbon trading schemes also allow firms to offset their own emissions and this is where the trade really becomes dubious as they can continue to pollute at high levels and just throw some money at a cheap developing world project to cut emissions that was going to happen anyway.

The carbon trade has already evolved bankers, consultants, investors , brokers  and deal closers but its all rather ad hoc and most likely to lead to a situation where the most profitable carbon trading
transactions and the most pressing emissions issues diverge.

Turning  carbon emission into a commodity looks set to enrich a few people but dont bank on it cleaning up the environment or saving the planet.   

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