Subprime Carbon: Environmentalists Warn About the Next Big Bubble

President Obama and Congress are nowhere near drafting a climate bill, but the angst over the future carbon market is in full bloom. There are two good reasons for that: The recent financial meltdown in the U.S., and the recent carbon-market meltdown in Europe. Today, even as Treasury Secretary Tim Geithner is urging Congress to adopt greater financial-market regulation, another Capitol Hill hearing room is full of concern about another market subject to price gyrations: the carbon market. The biggest worry is how businesses are meant to adapt to a world where the price for a new must-have asset—the right to emit carbon dioxide—can swing so violently. In Europe, for instance, prices for carbon permits have whipsawed from a high of 30 euros a ton to a low of 2 euros a ton. Just as sketchy home mortgages set the stage for the subprime mess in U.S. banking markets, sketchy environmental initiatives threaten to create a “subprime carbon” mess, environmental group Friends of the Earth warned today. If correctly valuing McMansions was tough, how hard will it be to properly price the environmental benefits of a Mongolian wind farm, or other measures meant to reduce emissions of greenhouse gases? Carbon permits are still derivatives, after all...WSJ