One of the primary solutions for climate change being touted by global warming alarmists is the purchase and sale of carbon credits. Put simply, companies, countries, and individuals could balance their CO2 output by purchasing credits from others that are emitting less greenhouse gases than prescribed maximums.

The concept is that this would give companies, countries, and individuals a financial incentive to produce less CO2. Readers might recall that during a debate on “Hannity’s America” this past Sunday evening, the two liberal guests firmly avowed that there wasn’t anything wrong with Al Gore’s use of private planes because he was offsetting his massive emission of CO2 with purchases of carbon credits.

Unfortunately, there’s a hitch in this scheme that threatens to totally derail it: carbon prices are plummeting due to an excess supply. I realize this might be a bit complex, but an article published in Green Business News wonderfully detailed the problems inherent in this scheme (emphasis mine throughout):  

A leading economist this week warned that the world's two leading carbon trading schemes are failing to deliver the expected benefits due to a collapse in the price of carbon credits - and the situation is likely to get far worse before it gets better.

Many politicians have identified carbon emissions trading schemes as the best means of tackling climate change, arguing that by putting a price on carbon emissions firms have a financial incentive to reduce their carbon footprint.

However, speaking to an audience of academics and business leaders at this week's Tyndall Centre conference on investments in low carbon technologies, Professor Catrinus Jepma of the University of Amsterdam warned that both the EU's Emissions Trading Scheme and the UN's Clean Development Mechanism were in danger of failing with prices for the carbon credits used under both schemes predicted to reach just a few cents.

Stick with this, folks, because the entire concept of carbon credits could totally implode:

"The Stern Report suggests we need a price for a tonne of carbon emissions of $20, rising to $30, $40 or even $50 to stabilise [the level of CO2 in the atmosphere] at manageable levels," he said. "But there is a good chance that the carbon credits that are meant to provide incentives for reducing emissions will be available for next to nothing."

How delicious. The article marvelously continued:

The problems with the European Trading Scheme are well documented with the collapse in the price of a tonne of carbon dating back to May last year when it emerged that most countries in the scheme had set their carbon caps far too high, resulting in fewer firms than expected having to buy credits and causing the price of a tonne of carbon to plummet from over €30 to less than €10.

Everybody still with me? Good:

As one delegate observed "with some firms having carbon emissions capped at 110 percent of what they actually required it was always going to fail".

The EU is seeking to rectify the problem ahead of the second phase of the scheme, which starts next year, and recently rejected many member countries proposed emission allowances for the next phase as too high, ordering them to go away and come back with lower caps that will force more firms to cut emissions or buy credits.

However, Jepma argued that with no link existing between the first and second phase of the scheme the cost of carbon credits will drop to almost nothing by the end of the year. Currently the price is already below one euro meaning there is little incentive for firms to cut emissions as it is cheaper to just buy in credits to offset their pollution.

The net effect here, folks, is that all incentive to cut emissions completely disappears if there is no value to these credits. The article continued:

He also warned that something similar was in danger of happening with the Kyoto Protocol's Clean Development Mechanism (CDM), which is designed to allow signatories to the agreement to meet their carbon emission reduction targets by buying in Certified Emission Reductions (CERs) or carbon credits from CDM-approved carbon reduction projects in the developing world.

Jepma said the scheme was in danger of becoming a victim of its own success with over 500 projects already approved by CDM and a further 1,000 projects in the pipeline awaiting approval. He predicted that as a result over 2.4bn CERs will be available by 2012.

Meanwhile, Jepma warned that Russia and many of the Central European States are on track to be well below their Kyoto emission targets for 2012 meaning they will generate 2.8bn credits or Assigned Amount Units that they can sell to those countries unable to meet their Kyoto obligations.

This means that there will be a supply of 5.2bn tonnes worth of assorted carbon credits available under the various Kyoto carbon trading mechanisms by 2012, but the biggest polluters in the scheme – the EU, Canada and Japan – are expected to exceed their targets by just 3.6bn tonnes.

"Under the Kyoto targets the supply of credits will outstrip the demand," said Jepma. "We are going to see the same scenario as with the ETS whereby the price for a tonne of carbon starts high and then collapses to close to zero by the end of the scheme… which is precisely the wrong message."

And here’s the payoff, folks:

He added that such a scenario would not only remove the financial incentive for countries to invest  in clean technologies that help them stick to their emissions targets - as it would be cheaper to continue polluting and just buy credits - but it would also discourage investment in carbon reduction projects in developing countries as they would have to pay for CDM approval only to find they could not get a good price for the carbon credits they generate. 

As liberals and the media carp and whine about America’s lack of involvement in Kyoto, they completely ignore all the inherent flaws. As a result, it seems that the Senate in 1997 was quite wise to recommend – in a 95 to 0 vote – that the Clinton administration not participate in this farce.

Of course, this is a fact that all in the media have completely forgotten as they blame America’s lack of involvement in these protocols on George W. Bush.

Regardless, don't expect to see any of this reported by major American media outlets. After all, we certainly wouldn't want the public to know how this whole scheme is failing in Europe.

—Noel Sheppard is the Associate Editor of NewsBusters.