Do we trust city wide boys to save the world?
The much vaunted emissions trading scheme, beloved of airlines and other environmentally unfriendly industiies, is comming online. But will it actually work? In the UK we have one of the most un-regulated enery markets in Europe. How effective has this been? In this article we try to draw some comparisons and predictions on the emissions trading scheme.
The Uk energy markets have been good for the traders. The market is boyant with city energy traders making substantial bonuses in recent years - multimillion pounnds in some cases. They have benefitted by increased oil prices due to the war in Iraq and various other external problems. One has to wonder about a "free market" system that allows a select few to profit substantially through no skill of their own. Belive me, I know as I work in the city in my day job.
And what about the other side of this equation? Many believe the markets are a "zero sum game". So who is paying for these city trader's bonuses? Well that is the consumer, of course. A telling feature is a recent statistic from West Sussex.
West Sussex is a very affluent county - there are many city types live in the "stockbroker belt" of which the north of the county is part. It suffers from vastly inflated house prices due to the city types spending their bonnues on bricks and mortar in this area. Thise very same energy traders who have got their massive payouts through no skill just luck and by being in teh right place. Despite this, 20% of the people are in danger of fuel poverty.
Yes, 20% - one in five! And this stastic was gathered prior to the last hike in gas and oil prices. The term fuel poverty is defined by government as requiring to spend above a certain percentage of your income on fuel - to heat your home and for transport.
The trouble with markets is they are greedy. The profit motive is all that motivites them. Hence the dichotomy displayed above. The city traders are famous for their excesses in all walks of life, including the number of holidays flown and their big sports cars. The energy market is driven by this profit potential. Why, do you think, there are so many foreign companies involved in the energy sector in Britain? It is because Britain is one of the few countries in Europe that has a truly de-regulated energy market. And the city boys love it.
But this does nothing to address the underlying problems. The traders don't care - all they want is more trading and higher energy prices, or if prices are low, higher volume of trading. The market is not interested in a fair division of a precious resource nor in rewarding for abstinence.
What can we say about the emissions market? Well the market will want to encourage trade. They will want to provide a flow of allowable emissions from countries and companies not using them to those who will - and make a profit doing it. Does this really seem like a strategy to reduce emissions? Not to me it doesn't. And once the companies and countries have sold off their emissions, who polices the fact? What is sto stop them just producing any how?
There is no mechanism in a so-called free market to divide fairly. The motives are all profit and greed. The markets are built on the fallacy of infinite growth. But this model is fundamentally flawed in a finite, and very small, world. Where is the sense in applying an economic technique born from the growth model to try and promote a sustainable model? Mark my words, but the sucess of the emissions trading scheme will be described in the growth of the market itself. The politicians, who jump to the tune of their sugardaddies in big business just don't get the fact that either infinite economic growth dies or we do.
Now if you believe that the energy free market in Britain has contributed to lower energy prices, you got to ask yourself, is this what we want to do with emissions?
The coolpool idea seems good, but I who is to say that once a contract is cancelled another cannot just be created in it's place. Now there is an idea that would appeal to most traders. And of course the idea is one from a senior Man Group, a most sucessfull hedge fund.
Your author is very doubtful that the free energy market in Britain has been a better option that the more regulated markets in the rest of Europe, and is very doubtful that the free market approach to emissions will work.
