Saturday, January 05, 2008

Disaster Capitalism enthuses investors.

The New York Times recently claimed that "Carbon will be the world's biggest commodity market, and it could become the world biggest market overall". This nugget from January's edition of The Banker explains to corporate and investment bankers that there is an upside to global catastrophe, particularly in market-led mechanisms supposedly designed to cope with it:

Corporate/institutional banking and asset management will see the strongest upsides, with new carbon markets, growing demand for hedging innovation and clean technology financing and advisory revenues potentially attracting $225bn of new investment per year by 2016.

The International Financial Review's end of year 2007 edition is much more enthusiastic. "Carbon's future burns bright," it exclaims, with an accompanying visual aid showing money bags billowing from factory chimneys. Noting that the market has been "thriving", it is concerned above all that the Kyoto Protocols, so lucrative to date (yet so ineffectual at doing anything about the stated problem), run out in 2012 - where will the money come from then? Someone has to extend it! And why, if Bush won't ratify the damned protocol, then corporations are going to find a way to make money out of it anyway - hence he introduction of a Clean Development Mechanism (CDM) market in the US. Corporations can take relatively inexpensive measures to curb their carbon outputs slightly and sell the credits they earn on the global market.

In 2007, the carbon markets reached an historical peak of $117bn in value, and can only go up from here. The great thing about for investors is that it doesn't rely on the opportunities that markets can independently provide. Rather, governments and inter-governmental institutions can through subsidy and regulation utterly re-order the balance of risks and advantages, create a new set of winners and losers. For this reason, the carbon market has, er, 'weathered' the credit crunch and expanded beyond expectations.