President Obama met with twenty senators Tuesday night to discuss the heightened urgency of cap-and-trade legislation in light of the largest environmental disaster in American history. While the oil spill has dominated headlines for two months, very little attention is paid to the history of the idea of cap-and-trade and who would stand to benefit from putting the force of government behind it. Before we can examine the players in the lucrative climate change industry, we must first understand the game.
How the game of cap-and-trade is played
Climate change is a man-made event caused by high quantities of greenhouse gases emitted into the atmosphere by people, cars, industry, and so forth, according to environmentalists and many scientists. It will lead to climactic catastrophes if something isn't done and done soon, say people like Al Gore.
Whether Al Gore and the environmentalists are correct or not is outside the scope of this article. Just go along with it for now.
Carbon emissions from the biggest polluters--industries--need to be measured by independent auditors and then capped at some arbitrary amount to limit their impact on the environment. However, rather than a hard cap, which many companies would have a difficult time complying with, this is a soft cap. Companies would be able to exceed the limit provided they pay some sort of penance.
Companies that come in under the limit could sell that penance to them. The exact amount a company goes under would be quantified as a number of carbon credits. The "green" company could then sell the credits to the polluting company.
Cap, the arbitrary pollution limit, and trade, the act of one company getting its pollution "forgiven" by transferring its money to a redeemed company, acts as a carrot/stick stimulus for all participating companies. With this cap-and-trade legislation, the Democrats hope to compel companies to reduce global emissions.
Cap-and-trade is already a reality
While we're sitting around waiting to see if President Obama has enough Senators to pass cap-and-trade legislation, it's easy to forget that it's already going on in Europe and the U.S.
While European nations are complying with the Kyoto Protocol, some American companies are participating in cap-and-trade on a purely voluntary basis--for now.
They trade carbon credits on the Chicago Climate Exchange (CCX), the United States' only
carbon credit trading system. The CCX is the stadium in which the game of cap-and-trade is played. Right now it's a minor-league sport, but it has some real superstars behind it.
How the players stand to benefit
For the sake of argument, let's assume that the plan is economically sound--that it won't raise consumer prices or put companies out of business. Let's say it works great--there are still some glaring conflicts of interest that we must examine.
At the beginning of the decade, a promising Chicago-area state senator named Barack Obama sat on the board of directors of the Joyce Foundation, a nonprofit organization dedicated to Progressive causes such as gun control and the environment. The group contributed money to a research program at the Kellogg School of Business at Northwestern University. In this program worked Richard Sandor, an economist known as "the father of financial futures."
Sandor's research would lead directly to the creation of the Chicago Climate Exchange.
Time Magazine would later call him "the father of carbon trading" and a "hero of the planet" for founding CCX and its European counterpart. Dozens of companies signed up for the privilege to buy carbon credits, either by altruism or so they can brag to their customers that they went green. CCX makes money each time a firm is audited to measure their carbon footprint and each time a carbon credit is sold on the exchange.
A "socially conscious" investment firm saw the potential in CCX and bought a stake in it. That firm was Generation Investment Management (GIM). GIM makes money every time CCX makes money, which again is every time a company buys a carbon credit. Who founded and currently presides over GIM?
None other than Al Gore, Mr. Climate Change himself.
It would seem Mr. Gore--along with co-investor Goldman Sachs--has a hefty financial stake in convincing companies to go green for the sake of the environment. So far he's been successful at it--GIM is worth $2.5 billion.
Al Gore, Barack Obama, Richard Sandor and Goldman Sachs aren't the only players in this game. Would you believe Fannie Mae, the GSE that is in the home mortgage industry, also plays a prominent role?
On November 7, 2006--24 hours after the Democrats retook control of Congress--Patent No. 6904336 was approved by the U.S. Patent and Trade Office. That patent, which governs the software used to power the Chicago Climate Exchange, is owned by Fannie Mae even though it has nothing to do with its charter--giving the mortgage company proprietary control over the automated trading system in the CCX.
If you're keeping score: Barack Obama helped create the Chicago Climate Exchange--the "trade" in cap-and-trade--Fannie Mae (along with Obama fundraiser Kenneth Berlin) controls it, and Al Gore and Goldman Sachs stand to benefit from every transaction that occurs on it.
And they're all pushing to make their system the law of the land. Where is the media on this?