A word to the cynics: greed can be good

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A consortium of ginormous banks recently pressed for the creation of an integrated carbon market encompassing the United States and other industrialized nations. The move prompted eye-rolling in some quarters, but I’m not really sure why.

The banks stand to make huge sums of money from the implementation of a global cap-and-trade system. Some speculate that carbon will soon become the largest commodities market in the world. Presumably this windfall is what motivates the banks’ sense of urgency.

Or maybe not. Maybe they’re just really, really concerned about climate change, they read a bunch of blog posts about the various policy solutions, and decided cap-and-trade is the way to go. I don’t suppose we’ll ever know what motives lurk inside a banker’s heart, and it’s not clear to me that we should care.

One of the well-known advantages of cap-and-trade systems over a carbon tax is their greater political saleability, and a big part of that saleability comes from the fact that cap-and-trade systems create profit opportunities in some industries. If banks want to hire expensive lobbyists to press for quick — and meaningful — action on climate change, far be it for me to complain.

Two related points:

  1. Cynicism would be justified if the banks were pushing lame, watered-down climate legislation. But it ain’t so. The consortium is pro-auction and anti-safety valve. If you don’t know that means, don’t worry about it — suffice to say that the banks are pushing for the strongest form of cap-and-trade.
  2. Cynicism might also be justified if the banks were part of an obstructionist industry finding deathbed religion on climate change, but in fact the financial services industry has generally been quite forward-looking.

Given that we’re soon going to be hearing a chorus of business groups arguing that climate change is too expensive to do anything about, I’m pretty happy to see some self-interested and well-funded parties arguing otherwise.

Photo available under Creative Commons license from unfortunately named Flickr user tEdGuY49®.

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  1. Jeff Shaw - October 3, 2007

    Not sure what ginormous is? Is that really big? Can I buy a word credit somewhere to offset that “word?”

  2. Chad - October 3, 2007

    It’s pretty simple. They want a cut of the action and to make fat profits. Hence cap-and-trade and auctions, which gives them lots of places to make money.
    I was watching one of those financial shows while eating dinner the other night. Someone was complaining about the housing market, when one of the Wall Street-type traders let slip an interesting figure: that the “financial sector” accounts for 26% of corporate profits. It’s nice to know the bankers are getting their hands on a quarter of the money.
    Forget cap-and-trade. There is too much in it for bankers and too much room for political corruption (see Europe’s carbon market for more information). Just slap a tax down on emissions and get it over with. You get the same result in theory as cap-and-trade, with less of the side-effects, more transparency, and a greater ability for people to predict future prices and act accordingly.

  3. Adam Stein - October 3, 2007

    Ginormous = gigantic + enormous
    It’s a portmanteau word, along the same lines as spork, brunch, cyborg, etc. It hasn’t made it into the OED yet, but I see it gets about a million hits on Google, which is actually about 3 times as many hits as the term “carbon offset.”
    Chad — carbon taxes are great. They’re also not likely to happen. Cap and trade is dandy as well, if implemented correctly.

  4. Anonymous - October 9, 2007

    We need to get the idea out of our collective brains that, generally speaking, people(especially those lurking about at the corporate bottom line) will not take serious action on anything unless it will benefit them in some way. Our hard-wired “survival of the fittest” genetic makeup (as well as a Harvard MBA) does not allow us, as a collective body, to act otherwise. In short: human beings have not become so successful as a species by giving stuff away. With this in mind we shouldn’t become seduced by the notion that big business is going to simply give away their bullets because they are feeling altruistic. Once we accept this basic driver of human behavior we can begin to deal with climate change and implement legislation that forces us to behave in a manner that we may not particularly enjoy (ie. pay for off-sets, carbon taxes, etc.). If you are trying to help a drug addict you need to accept fully that he or she, at a core level, is an addict. Our addiction is cheap oil.

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