The Kyoto Protocol establishes a mechanism to certify these emission reductions called the Clean Development Mechanism (CDM), which establishes a bureaucratic process under the supervision of the UN to do this certification. The purpose of the CDM is to keep the process honest. Only certify emission reductions for projects that would have been built anyway and that would have had a greater carbon footprint if they had been built the way they would have been built.
Got that? You have a CER, with real cash value, as long as a UN organization will certify what you might have done, and the way you might have done it, if you had done it, and done it that way.
An interesting point brought up in the comments section is that this entire market is based off of the ability for the UN to certify these things. In other words they are the ones creating the demand and also taking care of the supply as well. They aren't backed with gold or the full faith and credit of the United States, or even a liar loan mortgage. They are backed with UN bureaucratic assumptions.These UN assumptions are based on hypothetical dream world scenarios. For instance, if you wanted to build a steel mill in China you first think about how much carbon the thing would spew out if it were built on Narnia, Oz, Middle Earth, or Earth 1 and then you get a credit by reducing that amount in the real world.
So a Steel Mill built in Oz next to the Munchkinland staffed by the Lollipop Guild would spew out 1000 tons of CO2. Instead this Chinese businessman will build a steel mill in the real world that spews out 500 Tons of CO2 and get a credit for the difference. All he needs to do is bribe the right UN official and he can then sell 500 Tons of CO2 offsets for big cash.
Also Goldman Sachs or whomever will get a piece of both sides of the trade. Sounds like a good deal for everyone involved except for the tax payer that gets to pay a higher price for their government's participation in the scheme.
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