“Offsetting” Crisis? - Climate Change Cap-and-Trade Need Not Contribute to Another Financial Meltdown

In 2009, the promise of a comprehensive federal cap and trade bill to address climate change fell apart. At least in part, this was due to the fears that exotic 'carbon' financial instruments might cause more financial crises. As California launches it economy wide carbon trading system, and other regional systems and the even possibly the EPA consider cap and trade, it is important to revisit what, if anything, about carbon denominated financial instruments might lead to financial market problems. The most problematic of the instruments, offsets, can be designed to lessen financial risk from underlying asset failure.