Cap & Trade to increase personal tax 15% per Obama, hedge fund barbarians at the gate, all for a lie
- "George Soros, the billionaire hedge fund operator, says money managers would find ways to manipulate cap-and-trade markets. “The system can be gamed,” Soros, 79, remarked.... “That’s why financial types like me like it -- because there are
- financial opportunities.”
- cost American taxpayers up to $200 billion a year,
- the equivalent of hiking personal income taxes by about 15 percent.
- for strong US and international action on global warming in New York today.
"We cannot drag our feet on the issue of global climate change," said Thomas DiNapoli, who heads the
- $116.5bn New York state pension fund."... ***
States and local governments that actively promote global warming regulation do so through a coalition known as Ceres, a self-described “…national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change.”28 Although Ceres describes its mission as “Integrating sustainability into capital markets for the health of the planet and its people,” it essentially boils down to promoting global warming regulation.
- Ceres lobbies and pressures corporations on global warming, holds
investor “summits” on global warming,
- directs a coalition of institutional investors focused on global warming, publishes reports on global warming, and
lobbies the government for global warming regulation.
- Not only did Ceres lobby for the Lieberman-Warner global warming bill in May 2008,29 it recently
gave credit to its pension fund members for successfully pressuring the Senate Appropriations Committee to approve legislative language calling for
- climate change disclosure by publicly-traded companies.30"...
29 See e.g., Letter from Investor Network on Climate Risk to Sen. Harry Reid and Sen. Mitch McConnell, May 30, 2008.
30 Elizabeth Pfeuti, “Pressure on Climate Change Pays Off,” Global Pensions, July 21, 2008, available at http://globalpensions.com/showPage.html?page=gp_display_news&tempPageId=805573 as of September 2, 2008."
from "Pensions in Peril: Are State Officials Risking Public Employee Retirement Benefits by playing global warming politics?" by Malloy and Borelli, National Center for Public Policy Research, September 2008 ***
- Estimates of the potential size of the U.S cap-and-trade market range from $300 billion to $2 trillion.
Banks intend to become the intermediaries in this fledgling market. Although U.S. carbon legislation may not pass for a year or more, Wall Street has already spent hundreds of millions of dollars hiring lobbyists and making deals with companies that can supply them with “carbon offsets” to sell to clients.
- JPMorgan, for instance, purchased ClimateCare in early 2008 for an undisclosed sum. ...Financial institutions have also been investing in alternative energy, such as wind and solar power, and lending to clean-technology entrepreneurs.
The banks are preparing to do with carbon what they’ve done before: design and market derivatives contracts that will help client companies hedge their price risk over the long term. They’re also ready to sell carbon-related financial products to outside investors.
(Blythe) Masters (of JP Morgan Chase) says banks must be allowed to lead the way if a mandatory carbon-trading system is going to help save the planet at the lowest possible cost. And derivatives related to carbon must be part of the mix, she says. Derivatives are securities whose value is derived from the value of an underlying commodity -- in this case, CO2 and other greenhouse gases.
“This requires a massive redirection of capital,” Masters says. “You can’t have a successful climate policy without the heavy, heavy involvement of financial institutions.”
As a young London banker in the early 1990s, Masters was part of JPMorgan’s team developing ideas for transferring risk to third parties. She went on to manage credit risk for JPMorgan’s investment bank.Among the credit derivatives that grew from the bank’s early efforts was the credit-default swap. A CDS is a contract that functions like insurance by protecting debt holders against default... In carbon markets, many of the derivatives would be futures, options and swaps that would allow a company to lock in a price for carbon like it would for any other commodity related to its business, Masters says.... A large, liquid market in carbon credits would serve to keep their price low, JPMorgan says. “The reason why this is important is not because it’s going to create a new forum for us to buy and sell; it’s because the scale of what’s being contemplated here is absolutely enormous,” Masters says. ...
- Even George Soros, the billionaire hedge fund operator, says money managers would find ways to manipulate cap-and-trade markets. “The system can be gamed,” Soros, 79, remarked at a London School of Economics seminar in July. “That’s why financial types like me like it -- because there are financial opportunities.” ...
In a U.S. cap-and-trade market, the government would allot tradable pollution permits, called allowances, to emitters of CO2 and other greenhouse gases. The market would also likely include offsets -- credits generated by companies such as Eco-Securities that would have to demonstrate to U.S. agencies running the program that the offsets mitigate carbon pollution.
Point Carbon, an Oslo-based firm that analyzes environmental markets, estimates that by 2020 the U.S. carbon market could surge to more than $300 billion. That’s based on an assumption that the allowances, each representing a ton of carbon dioxide taken out of the atmosphere, would trade for $15. Bart Chilton, a commissioner of the CFTC, which would likely be one of the regulators of the carbon market, says it could grow as large as $2 trillion.
As they wait for a U.S. cap-and-trade system to be introduced, the big banks are busy building, not trading. Goldman Sachs, for example, has fewer than 10 traders dedicated to carbon around the world.
- “Carbon right now is not about sitting in front of a screen and clicking,” says Gerrit Nicholas, Goldman’s head of North American environmental commodities. “It’s all about running around talking to clients about what they can expect, how big it can be and what their risk is.”
Abyd Karmali, who heads global carbon emissions at Bank of America Merrill Lynch in London, says companies, banks and investors
- are all watching Congress.
“A lot of people are focused on Copenhagen, but what happens in Washington on federal cap and trade is, arguably, more important,” says Karmali, who’s president of the Carbon Markets and Investors Association, an international trade group. “This market is still in its very early stages. U.S. cap and trade would make an order of magnitude of difference.” ...
Derivatives contracts designed for a particular company or transaction, known as over-the-counter derivatives, are a hot- button issue in the larger debate over how the U.S. banking system should be regulated. Most CDSs and CDOs are OTC derivatives. They are created and traded privately -- not on any exchange -- and can be illiquid and opaque, says Andy Stevenson, a financial analyst for the Natural Resources Defense Council, an environmental group that supports the Senate legislation. The House cap-and-trade bill bans OTC derivatives, requiring that all carbon trading be done on exchanges.
The bankers say such a ban would be a mistake. OTC derivatives are a $600 trillion market, much of which consists of interest-rate swaps designed to hedge risks for individual companies. “It’s a concern of ours if they limit the market,” says Pat Hemlepp, a spokesman for AEP. “It reduces the options when it comes to cap and trade, and we have told people that on the Hill. We do feel it’s best to have banks and other parties able to participate.”
- The banks and companies may get their way on carbon derivatives in separate legislation now being worked out in Congress....
Wall Street sees profits at every stage of the carbon- trading process. Banks would make money by helping clients manage their carbon risk, by trading carbon for their own accounts and by making loans to companies that invest to cut greenhouse gas emissions.
- Chicago Climate Exchange
A clear U.S. price on carbon, determined in a large market, would help drive billions of dollars into investments to clean the air, says Richard Sandor, founder and chairman of the Chicago Climate Exchange and the Chicago Climate Futures Exchange. He is also the principal architect of the interest- rate futures market.
- “What’s important is the price signal,” Sandor says. “It will stimulate inventive activity and cause behavior to change.” The Chicago Climate Exchange, the biggest U.S. voluntary greenhouse-gas-emissions trading system, trades 180,000 tons of carbon a day, up from 40,000 tons in 2006.
Over time, carbon, like other commodities, needs markets linked around the world, Goldman’s Nicholas says.
“If you believe the science and that something needs to be done about this, the market probably needs to be big,” he says. “Carbon could become an important commodity. I’m not saying it will be bigger than others, but it will be another important business for us.” ...
In 1994, Exxon Corp. needed a credit line after it was threatened with a $5 billion fine for spilling 10.8 million gallons (40.9 million liters) of oil into the ocean off Alaska in 1989. Masters asked the London-based European Bank for Reconstruction and Development to take on the Exxon risk in exchange for an annual fee paid by JPMorgan, according to “Fool’s Gold,” a book by Gillian Tett (Free Press, 2009) that chronicles the history of credit derivatives at JPMorgan. The loan would remain on JPMorgan’s books and be insured by the EBRD, an international bank owned by 61 countries that supports development projects in Central Europe.
- The bankers called the contract a credit-default swap....
The hedge fund manager (Michael Masters) says that banks will attempt to inflate the carbon market by recruiting investors from hedge funds and pension funds.
- “Wall Street is going to sell it as an investment product to people that have nothing to do with carbon,” he says. “Then suddenly investment managers are dominating the asset class, and nothing is related to actual supply and demand. We have seen this movie before.”
Still, companies need the financial markets to help them drive down their greenhouse gas emissions at a reasonable price, says the NRDC’s Stevenson.
- “There are trillions of dollars needed to make this transition, and companies need the banks,” says Stevenson, a former trader for London-based hedge fund firm Brevan Howard Asset Management LLP....
Northeast Test Case
A relatively small-scale cap-and-trade effort called the Regional Greenhouse Gas Initiative tells a cautionary tale. RGGI is a CO2 reduction program established by a group of northeastern and mid-Atlantic states in 2003 with a goal of cutting CO2 emissions from power plants in the region 10 percent by 2018. Ten states are now members.
- Trading in the companies’ pollution permits began in September 2008 -- in the middle of the financial crisis. As of mid-November 2009, prices of the pollution permits were down 50 percent, according to data compiled by Bloomberg.
Meanwhile, the 10 best-performing investment funds with climate change or clean energy as a central goal all plunged 40 percent or more in 2008, according to data compiled by London- based New Energy Finance. The shrinking global economy sapped momentum for developing new environmental projects.
- “To mobilize capital now and begin a transformation to new energy technologies is a very risky business,” says Ken Newcombe, founder of C-Quest Capital, a Washington-based carbon finance business that invests in offsets. “Returns have to be reasonable to take on those risks.”...
"Having a pool (translation: money taken from what remains of the evil US middle class) of risk capital is absolutely vital to the smooth introduction of a cap-and-trade regime in the U.S.”
- As Washington debates climate policy in the shadow of the recent financial meltdown, lawmakers have a right to be wary, Newcombe says.
“There’s legitimate concern that there may be unseemly profits or untenable risks,” he says....
Meanwhile, the industrial firms that would be affected by cap and trade are
- eager for the game to begin,
says Lew Nash, a Morgan Stanley executive director and the firm’s U.S. point person on the carbon markets.
“There is such a fog right now in terms of how the legislation is going to work,” Nash says. “There is a real economic desire here for price signals that will permit the market to properly price carbon.
- Our customers have little choice but to participate in this evolving market.”"...
Bloomberg News, 12/4/09, "Carbon Capitalists Warming to climate market using derivatives" by Lisa KassenaarTweet Stumbleupon StumbleUpon