Back to the Future

And Now, Import Controls

Stupid people who have been led by the nose to think that an international carbon credit trading system might work are now crying over spilt milk.  The "market" was an attempt by governments around the world to create something of value out of nothing.  Sadly for them, governments just don't have that kind of ex-nihilo powers.

The Emissions Trading Scheme mania attempted to "work" with market forces and "harness" them for the good of mankind.  What all protagonists stupidly forgot (if they had ever learned it) is that markets are decentralised decision making mechanisms.
  Something offered for sale is only of value if millions of people freely perceive it to be so.  The value, if the market is to be sustained, must be freely perceived, not legislatively dictated by artificial arbitrary fiat.  The ETS debacle seeks to create value by stroke of a legislative pen.  The demand always was artificial, buoyed up only by dint of regulation and law.

Then, when the market crashing around them, the protagonists are doubling down, seeking even more controls over the "market".  Now import controls on cheap, foreign carbon credits are being urged in order to "save" the local "product". 

This from Stuff.

First, the problem.  The price of carbon credits has slumped.

A crash in carbon credit prices means the government has no option but to ban or drastically restrict the use of imported carbon credits of dubious quality, or the emissions trading scheme (ETS) could become a national embarrassment.
The price of New Zealand units (NZUs) has crashed from $22 in May to about $11 last week, stifling interest in developing carbon offsetting initiatives here, according to carbon market participants. The price crash has been so steep that by one calculation, if the price trend continued for another 100 days, the value of NZU credits would be zero.

Is this a temporary market blip, or something fatally flawed?  Because carbon credits rely upon legislative fiat and artificial ex-nihilo pretensions, it is the latter.

The reasons for the crash appear to be the unfettered ability of New Zealand emitters to import credits of dubious quality from overseas, coupled with the recent dumping of international credits by cash-strapped European industrial and utilities companies selling down their stockpiles of carbon to realise cash as the debt crisis worsens, participants in the fledgling carbon trading market say.

Big emitters here have been able to buy the UN-backed Certified Emmissions Reductions (CERs) cheaply to surrender under the ETS, gutting the price of NZUs.  As a result, those who have created NZUs – perhaps through planting timber on part of their farm – have almost abandoned the market.

So, the world is being flooded with carbon credits.  But these are just paper fictions.  Artificial constructs that resemble financial derivatives.  Enter the entrepreneurial, swashbuckling international (non-Western) free market.  Overnight it can create all sorts of paper fiction credits.  The participants no doubt reason that if the West is stupid enough to pay for them, we will supply them.  But, of course, as soon as everyone gets in on the game, there is an oversupply of credits and prices drop.  No-one wants them.  Just as the value of an "air credit" would be zero due to endless supply, so carbon credits are doomed to decline in price.  (They have never had an intrinsic value--they have always represented an artificial construct.)

So now the oh-so-clever carbon-credit market protagonists in New Zealand are looking to the gummint to help.  Stop the import of bogus, knock-off carbon credits that are being "manufactured" in Asian and Russian sweatshops.  It's immoral we tell you.  Import controls is what we need.

Mark Belton, from Permanent Forests International Limited, a Christchurch business which works with farmers and others to establish permanent forests, said for the New Zealand carbon market to work, there has to be a bottom to the NZU price that is not too low, otherwise it loses its ability to function, and credibility.

"There's the reputational risk for New Zealand if we allow in units from offshore that are viewed internationally to be very suspect." He predicted a ban in CER imports, or a hefty restriction. Certainly, the government has been made aware of the risk. In a prescient statement, the ETS Review Panel in a June report published in September said there was "a risk these units will flood the New Zealand carbon market and drive down the NZU price. This could impact on New Zealand's incentives to abate, including in particular on forestry investments and on the reputation and integrity of the ETS".

We expect the gummint will do just that--put import controls on international credits.  Let's see what that does to our free-trade agreements.  But markets are relentless in that they expose artificial protections and rules and exploit them.  If NZ prices its carbon credits above the international price then no-one will want to buy NZ credits.  So, New Zealand is on the road, once again, to becoming a fortress economy, forced to trade only with itself.  Import controls are de-facto price controls.  Rob Muldoon must be laughing in his grave.  

We are watching another Tower of Babel crash to the ground.  How sad.  Never mind.  The humanists and statists will never learn.  They are spiritually and morally incapable of learning anything that might cast doubt upon their fixation with the omni-competent powers of gummint.