Carbon Trading and Moral Hazard
The causes of the current financial crisis are complicated, just wait until we start trading carbon. Lawrence Solomon writes about risk in the carbon allowance trading markets:
The ‘marketplace’ for carbon allowances will be one in which both supply and demand are set by governments, in which intense corporate lobbying for changes to both supply and demand is all but certain, and in which moral hazard — in the form of an expectation of a government bailout — is an absolute certainty. Valuing the toxic instruments created by Fanny Mae and Freddy Mac, that corrupted the pool of debt securities, will seem like child’s play in comparison.”
Hat tip: Belmont Club
