Carbon trading will play an important role in tackling global warming, British officials said as they responded to fears that plans to expand carbon markets would lead to financial speculation.

 

Friends of the Earth, the campaign group, has claimed that plans to extend carbon markets at the UN climate conference in Copenhagen this December could trigger a second 'sub-prime' style financial collapse.

 

It said the majority of the trade was carried out by banks and investors who were packaging carbon credits into increasingly complex financial products similar to the 'shadow finance' around sub-prime mortgages that triggered the recent economic crash.

 

Carbon trading is part of the 'cap and trade' system under which governments set limits on how much businesses can emit. Those firms that cut emissions below their targets can sell permits to less efficient companies that must pay for the right to pollute.

 

The UK Department for Energy and Climate Change said that Britain would push at Copenhagen for a global cap and trade network building on the EU emissions trading system.

 

'Carbon trading can play a role, making it far more likely that we tackle dangerous climate change and get cost-effective emissions reductions,' a spokesman said.

 

Speaking on BBC Radio 4's Today programme, Patrick Birley, chief executive of the European Climate Exchange, a major carbon marketplace, said the important element of the scheme was the caps that government set on emissions that would be gradually reduced over time.

 

'Whether traders are making or loosing money is irrelevant to the environmental objectives of the scheme,' he said. 'Trading activity does take place but these are simply trading tools similar to those surrounding oil and gas.'

 

An example of a successful cap and trade scheme is the US Acid Rain Program that has cut SO2 emissions from electric-generating facilities. By 2010, the program will lower the cap to 8.95 million tons - a 50% reduction from 1980 SO2 emissions.

 

Related links

BBC Radio 4's Today programme

Carbon trading 'the next sub-prime' - new research, Friends of the Earth 05 November 2009