TCS Daily


The Kyoto Bubble?

By Iain Murray - February 27, 2006 12:00 AM

It is one of the hallmark features of a capitalist economy that investors will react to changes in policy and regulation in order to make money out of new opportunities. It is one the great risks of a capitalist economy that such speculation can be unfounded. With the current re-assessment of the west's energy policy in reaction to a number of fears -- global warming and energy security foremost among them -- it seems that both these phenomena are occurring. A lot of people are getting very rich as a result of policy changes, but there is substantial risk that we are seeing an energy frenzy develop. Economic historians might well look back on the first decade of this century as the days of the "Kyoto Bubble."

It is well known that Enron was a keen enthusiast for limits on carbon dioxide emissions under the aegis of a cap and trade scheme, which would enable companies to trade permits for the right to emit carbon dioxide. Enron documents released to the public reveal that executives thought such restrictions would, "do more to promote Enron's business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and the United States." We can now see why. In Europe, such a scheme has been introduced, and the energy companies and their advisers are very happy.

"The carbon market is going very well. We've seen tremendous growth this year," Henrik Hasselknippe, senior analyst at Point Carbon, told Agence France Presse on February 12. "Carbon is now being used as a commodity on the same lines as other energy commodities." According to his estimates, CO2 trading will be a $40 billion annual industry by the end of this decade. The current price for a metric ton of carbon is $31, while a year ago it was $8. Others are equally bullish. Thierry Carol of Powernext Carbon, a CO2 trading market, told the same reporter, "Things are taking off. This is just a start."

Unfortunately, energy consumers are not quite as happy. A report last June by investment bank UBS found that "CO2 is now the key driver of electricity prices in Continental Europe," with CO2 costs representing about 20 percent of the cost of energy. The energy companies are simply passing on the cost of the emissions permits to their customers. As the companies are allocated permits for free, this represents a significant gain to those enterprises. The World Wildlife Fund considers this an abuse of the market. UBS itself concluded that there is a significant risk of a windfall profit tax being placed on the industry. Others have suggested auctioning the permit rights rather than allocating them. For the moment, however, energy companies have been the prime beneficiaries of Kyoto and the energy consumer the prime loser.

Another Kyoto area where money is flooding in with the expectation of quick profits is renewable energy technology. As UPI Business Editor Martin Hutchinson has recently written,

The new energy sector is not short of private funding; its "cocktail party" popularity and the pressure of the Kyoto climate change agreement has produced an ever increasing devotion of resources to research, and a huge boom in speculative investment in the last couple of years. Private equity investments alone in the New Energy sector (excluding investments by existing corporations or government or fund-raising by publicly listed companies) totaled more than $1.6 billion in over 150 transactions in 2005, double the level of the previous year.

As always with such explosive growth, much of the development in the sector is ill thought through. Indeed the popularity of the sector appears to be producing yet another bubble, and has undoubtedly attracted many sharp operators and indeed outright crooks. A boom/bust cycle appears to be inevitable, which is a pity because it could set back genuine progress in the field for a decade.

This is a real concern. The presence of significant economic rents in the area will attract investment like flies to flypaper. For example, President Bush's new Advanced Energy Initiative offers $148 million for solar and $44 million for wind energy research in 2007. In most economic bubbles, the expectation of high profits is driven by inflated claims of the commodity's performance. In this case, those claims are backed in part by taxpayers' money, which makes them all the more attractive to investors. That does not make the bubble any less a bubble, however.

There are currently huge amounts of money in energy attracted there primarily by the presence of Kyoto-style regulation. That money, however, is not to the benefit of the energy consumer and may well damage the development of emissions-reducing technology in the future. It would be best for government to step out and let energy provision develop naturally, in response to the pull of the market. If people are genuinely concerned about global warming, as the polls tell us they are, then that worry will affect their behavior in the market. Kyoto advocates who tell us they do not trust the market, in fact do not trust the people. When the bubble bursts, we will see how wise that choice was.

Iain Murray is a Senior Fellow at the Competitive Enterprise Institute.

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144 Comments

Kyoto economics
The premise of this post is that carbon emissions have no cost. Atmospheric science has shown that the cost probably is enormous. Perhaps you want the pure capitalist solution: make the carbon producers (car drivers) pay the cost. This would mean doubling the cost of oil through taxation and putting the proceeds in a lockbox to compensate future sufferers of global warming. A gory solution?

Heads I win...
This is delicious: After crying for years that action to curb carbon emissions will hobble capitalism and impose irresponisble world government curbs on market activity, energy front man Murray is now worried that vigorous market activity responding to the issue is dangerous. The good news is he has at least interrupted his usual shrill accusations saying that we don't have any carbon problem that needs action.

Did you actually *read* the article?
Hey Fortunato!

Far from claiming that there is some type of all-encompassing danger from free market trading of CO2, Murray is pointing out the development of a market bubble that will adversely effect those that try to capitalize on it. He's saying that the writing is on the wall and that investors, governments, and industry all need to be wary of this surging market.

What happens if ten years down the road, CO2 is no longer considered an issue? Imagine you're holding contracts for several thousand tons of CO2 that you bought for $30 and now no one will pay you anything for it because it's worthless. Wouldn't that suck just as much as those people who held onto shares of Pets.com or any of the web-based grocery delivery services that went belly-up after the tech bubble burst?

I think you missed his point entirely.

Of course...
he missed the point. That is what Fortunato does best. Although I do find it amusing when he falls on his face so. It is also ironic that he describes Murray as "shrill".

Just another hustle
As a long-time professional in the energy business, the enthusiasm for "alternative" energy technologies has always been baffling. Barring the rare geothermal resource, they are without exception costly, inefficient, and unreliable compared to nuclear power.

Disonformation abounds and it always seems to play to people's hopes yet in the real world, performance has been a bust.

The field shares many characteristics with global warming and electric deregulation as "shake ups for shake downs."

Carbon Markets
Until Koyoto, the only carbon markets were diamonds, graphite, pencil lead, coal and oil.
How can a real market exist (for long, without subsidy) when it is created by the government?

speaking of bubbles...
Excuse me, I understood the piece quite well.

Regarding "bubbles," this site is a funny place to be warning about them. Speaking of Pets.com and so forth, this site is hosted by James K. "Dow 36,000" Glassman, who despite the rather large credibility problem posed by his enthusiastic pumping of tech bubble, regularly steps in here to reassure readers than any give boom is in no danger of being a bubble -- housing, for example, no problem; foreign loans, no problem. This is the first exception to the no-problem for growth areas.

Why not get a clue instead of mouthing personal attacks.
Are you really that empty of ideas that all you can contribute is the equivalent of nyaah nyaah?

No, you missed the point
Free enterprise and capitalism have little to do with it. As a government- and ENGO-created scam, Kyoto is naturally vulnerable to fraudulence. The very notion of applying value to the absence of something is absurd.

Truly delicious
Since at least half of Fortunato's posts contain little except ad hominems, it's truly amusing to hear him complain.

Hilarious, reminds me of the late and unlamented Dano and Eric.

Notice...
the attempt to cover up his ignorance with snide remarks. Fortunato knows whatever credibility he had in this argument is shot. If he was as logical and reasonable as he makes himself out to be he would explain his take.

Yes, I know you have a post below. See you there.

Not complaining
If I tell someone who posts something that is nothing but a personal attack to get some substance, it's a suggestion, not a complaint.

Ad homs are clear evidence that someone has run out of substantive arguments and has declared intellectual bankruptcy. And if some intellectual bankrupt somwhere on the Internet has a poor opinion of me, that really doesn't bother me at all: it's nothing to complain about.

Hello???
Still not making sense. I have explained exactly what I meant.

>If he was as logical and reasonable as he makes himself out to be he would explain his take.

I have done so. All you have offered is lame put-downs.

Once again...
showing your lack of reading and comprehension skills, I should point out that Glassman merely "hosts" the website and this forum. I don't believe that he is using Murray as a hand puppet to feed us his own views.

There are several views presented on this site and I am sure Glassman, who readily admits his error, can write his own pieces without feeding them to Murray.

Now with that out of the way, perhaps you would like to restate your claim that you understand Murray's article? You have not even attempted to take on the stats, facts, or premise of the article which you initially mis-stated. Perhaps you would like another chance?

more liberal lies
Atmospheric scientists have not shown that the cost of CO2 emmissions are possibly enourmous. They have shown us that the very low possible costs are being offset by moderate to large probably benefits.

hmm
eric was also famous for misapplying the title to Dr. Glassman's book.

Yet fortunato continues to deny that he is eric.

As usual, eric also continues to distract our attention from the fact that he has been caught in yet another whopper, by throwing irrelvancy after innacuraccy, after lunacy.

Correction
You have not explained anything Fortunato. You just work around admiting your knee-jerk reaction was false and ignorant.

Oh, and it was an excellent put-down.

No, you're hiding
the fact that RETLUOCC refuted your contention in this thread.

Oops!
Re-read my post and I don't like how it reads.

Glassman said he wasn't wrong with his principle points in his book (undervalued stocks, demystification of investing, investing in the long term) rather he lamented that everyone focused on the title, like Fortunato. His contention was that if the DJIA was fully valued it would sit at 36,000. Never, in the book, does Glassman say the Dow would reach 36,000.

Ready to eat your crow, Fortunato?

I think you need to learn to read.
What I wrote was:

"After crying for years that action to curb carbon emissions will hobble capitalism and impose irresponisble world government curbs on market activity, energy front man Murray is now worried that vigorous market activity responding to the issue is dangerous."

What RETLUOCC said was:
"Far from claiming that there is some type of all-encompassing danger from free market trading of CO2, Murray is pointing out the development of a market bubble that will adversely effect those that try to capitalize on it."

the unqualified word "dangerous" I used certainly includes the danger of a market bubble. Is your point that market bubbles can't be dangerous? If not, what in the world are you talking about?

apparently you think laughing at your own jokes means that they are funny
you're talking to yourself, big guy. Repeating "you're wrong" is not an argument. Repeating "you're wrong and I really put you down cleverly" is even less of an argument.

You should talk to the companies that trading emission credits and warn them
trading pollution credits ("the absence of somthing") has been going on for decades. extending this to carbon is hardly a stretch. By all means put in a call to power companies that have been doing this and tell them that they have made a grave mistake.

You probably don't want to confuse yourself with reality, but just look around - start with the Wikipedia article. If you see an error, note, you can notify Wikipedia and ask that it be changed.

You were the one callling Murray a hand puppet, not me
But Glassman's bubble record ("Dow 36,000") and Murray's ties with forces who don't want emissions are easily verifiable facts.

>Now with that out of the way, perhaps you would like to restate your claim that you understand Murray's article?

You or anyone else hasn't made even the beginning of a case that I have misunderstood it. Why not try making that case. Or again, do you regard the danger of a bubble as not a danger?

Did another James Glassman write "Dow 36,000: The New Strategy for Profiting From the Coming Rise in
If not, what is the issue.

As for the insults: shut up, Mark. You have nothing to say.

Poor baby!
someone writes a book with the title "Dow 36,000 The New Strategy for Profiting From the Coming Rise in the Stock Market" just before the market crash and we're supposed to think this is brilliant.

"Never, in the book, does Glassman say the Dow would reach 36,000"

I see. And the subtitle, "The New Strategy for Profiting from the Coming Rise in the Stock Market" was meant as a warning for people to dump their tech stocks because a crash was coming.

From the Publisher's Weekly review of Dow 36,000
For some reason, the reviewer doesn't seem to agree with your thoughts: he seems to think that the book does predict dow tripling:

"The only thing missing from this half-time speech of an investment book is an exhortation to buy stocks for the Gipper. Despite the sensationalist title, Glassman, a syndicated columnist, and Hassett, a scholar at the American Enterprise Institute who used to be an economist at the Federal Reserve, argue only the classic case for investing in stocks: that over long periods of time stocks have always outperformed alternative investments. But no motivational device is spared to make this case more strongly than it has ever been made before. Experienced investors will wince at the simplification and overstatement as the authors, in their effort to obliterate the arguments of anyone who has ever suggested that stock prices might actually fall, brush aside considerations like risk, dividend yields and price-earnings ratios. These and all other objections are downed out by the drumbeat of Dow 36,000! How do they arrive at this number? In several different ways, none of which is described in detail. Over long periods of time the Dow goes up, with inflation if nothing else. In the last two decades, it has been rising at a rate that makes it triple every seven years. So predicting that the Dow will triple eventually is not saying much. The key question for investors is, will it triple fast enough to make stocks an attractive investment? Here the authors fall into confusion, suggesting, in the space of seven pages, that it could happen in three years or 10 years. This last prediction implies that the stock market will actually do worse in the next decade than it has in the previous two."

heh
Just a statement of fact big guy.

Actually, if just repeating "you're wrong" is not an argument then why do you do it so very often?

Clearly a waste of time but
insults are all you know how to make, certainly not points that make any sense. The fact that a silly practice has been going on for years is hardly a justification for continuing a false practice.

I wish you very good luck investing in the carbon market. By the way F, how much certainty did COP 11 provide that CDM and JI would still exist post 2012? Still feel that good about the carbon market do you?

Nice.
At least you are pround in your ignorance.

Never has reading the title of a book been an actual substitute for reading the contents book. Something that you have not done and something that you are trying to get around admitting.

Neither was the book about tech stocks. I don't know where you get this but I am sure your little blurb below will no doubt enlighten me.

Because it's clear you can't
RETLUOCC was correct. You didn't bother to amplify your point; the purpose of your post was to mock Murray.

Excuse me sir, but...
It seems that insults are all that everyone but this fortunato person can make. As an outside observer, I see forunato making valid points and an army of nay-sayers chant in with insults and other derogery to nip at his heels.

If you have a poit, then you should make it. If you don't agree with the article, then you should say that too.

But resorting to personal attacks only makes fortunato's case stronger.

Or, at least, that's the way I see it as an "outsider".

Once again...
Do you think this qualifies for actually reading the book? Who is the reviewer Fortunato and what are his/her qualifications? This is quite a simplification to say the least. Whoever wrote this missed the point that the target audience were those who believed that the stock market was only for the rich.

You have high standards of evidence for others that you never seem to apply to yourself. Well, at least you know how to use Google. I guess any critique in a storm, eh?

Thud
To quote a blogger that I don't like much. But it does have that sound of sandbags falling on the heads of the nay-sayers.

Nice.

So?
>But Glassman's bubble record ("Dow 36,000") and Murray's ties with forces who don't want emissions are easily verifiable facts.

Then verify them. Give me the page number in Dow 36,000 were Glassman tells of the wonders of tech stocks. Show me were Glassman speaks of his love of stock bubbles.

Also show me where Murray has ties with "forces" who don't want emissions, whatever you mean by that.

You really didn't understand the article. The back-pedaling has begun!

Hello?
Did you actually read his first post? Clearly you did not. Perhaps you read some Fortunato's past postings you would see why he is so very popular.

Tony Blair
PM pens letter to climate change coalition
10 Downing Street, February 27, 2006

...I believe strongly, if we have the courage and commitment to build on this progress, that history will judge 2005 as the turning point in getting the world to face up to climate change. It is easy to forget that only 12 months ago, there were still powerful voices doubting the scale and even the nature of the threat we faced. That's no longer the case. We now have virtual universal agreement on the science of climate change.

...But above all, internationally, the BEST STIMULUS to the action needed to REDUCE EMISSIONS AND CREATE THE RIGHT INCENTIVES FOR INVESTMENT IN CLEAN TECHNOLOGY will be to decide what level we should aim to stabilise green house gas concentrations and global temperature levels. This must be the heart of future negotiations on climate change, bringing together science and economics.

I know how politically challenging all this will be. But we have no alternative but to do it. This is an absolutely critical decision for this generation of leaders. It should be at the top of all our agendas. We also have to accept that whatever action we now take, we can't stop climate change completely and it will hit hardest those countries and continents who already have the greatest problems. We have to work together to help them adapt to the extra pressure this will put on food, water and health...

Tony Blair

http://www.number-10.gov.uk/output/Page9107.asp

Load.
As in "what a..."

The same lies of universal agreement and the belief that humans can agree on the "level we should aim to stabilise green house gas concentrations and global temperature levels". Like we have that ability without even understanding what determines those levels.

the "purpose" is not the point
yes, it's true that I was being critical of Murray. That does't make me incorrect. Nor have you pointed out an error. to repeat:

What I wrote was:

"After crying for years that action to curb carbon emissions will hobble capitalism and impose irresponisble world government curbs on market activity, energy front man Murray is now worried that vigorous market activity responding to the issue is dangerous."

What RETLUOCC said was:
"Far from claiming that there is some type of all-encompassing danger from free market trading of CO2, Murray is pointing out the development of a market bubble that will adversely effect those that try to capitalize on it."

the unqualified word "dangerous" I used certainly includes the danger of a market bubble. Is your point that market bubbles can't be dangerous? If not, for the second time, what in the world are you talking about?

Here's a proposal.
When you think you've got a really funny putdown, you just type the number 1. When it's pretty good, but not the best, type 2. An ordinary one is 3.
That'll save you typing, and the rest of time trying to figure hot how funny you were -- you can tell us directly.

As far "repeating you're wrong" -- all I've done is note that your only argument is saying I'm wrong. That's not an argument.

Okay then!
Just answer the questions down below. That should keep us occupied.

Now you're getting silly.
First you blare arrogantly:

"The very notion of applying value to the absence of something is absurd," aparently not realizing that it's been done for three decades, very successfully. when apprised of this fact, all you can say is "the fact that a silly practice has been going on for years is hardly a justification for continuing a false practice." again, you should really telphone all the companies that have been able to expand using this, and also the citizens that have bene*****d from pollution reduction.

But instead, all you can do is fire off another set of non-sequiturs. I'm not plugging the carbon market, I'm just pointing out that it's hardly the only market that involves risk. If you choose not to invest, by all means do so. And thank you for sharing.

I'll never be as popular as you, T-man
I mean, I don't know how to laugh at my own jokes the way you do, or how to tell people I'm brilliant the way you can.

Oh, please
Someone writes a book Dow 36,000 just before the 2000 bust and you're trying to make a big deal out of the fact that he wasn't specifically recommending tech stocks?

As for Marray's ties-- try reading his bio, as posted on TCS.
http://www.tcsdaily.com/Authors.aspx?id=168
the CEI has never met a regulation it finds justified.

>You really didn't understand the article.

That's the fifth time you've repeated this, without any backup whatsoever.

Absolutely.
Sure. the title is "Dow 36,000 The New Strategy for Profiting From the Coming Rise in the Stock Market" but it makes absolutely no predictions about the stock market because Glassman now says it was misunderstood.

do you expect anyone to believe this? Do you believe it?

done so, but
you still have provided a word in the way of reasons why I was wrong about my characterization of Murray's argument. You say I don't understand it, but you can't say why or how: you just keep repeating I don't

outside observer, hardly
Unless there is a new stephen.

I'm guessing that you actually agree that insults, when targeted to those you dislike, substitute for facts, and facts, when you don't like them, are consigned to hate speech.

That's the style of the previous stephen.

Too true.
Some of us make jokes, others ARE jokes.

Sigh.
Because one only needs to read the article and look at your response. You clearly did not read it.

typical
So a pathetic attempt to distract attention from his obvious logical failures, constitutes a telling argument?

You must be a liberal.

hmm redux
I was just pointing out how you are attempting to divert attention from your previous lies, now that you have been caught out again.

I'm also pointing out your inability to construct anything resembling a rational argument.

I'm also laughing at your demand that everyone else desist from insults.

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