Are Carbon Credits the next Sub Prime?
15th November 2010
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Are Carbon Credits the next Sub Prime Crisis?

A recent Chartered Institute for Securities & Investment presentation "Is Carbon Trading and Investment the
next Sub-Prime Crisis?" prompted the audience to revisit their belief in man-made global warming and draw
parallels with the sub-prime crisis.

Structural incentives obscured the true value (or over value) of sub-prime mortgage backed securities. Until the
1970s investors paid credit rating agencies for due diligence. When rating agencies started charging Bond
Issuers for ratings, their financial interests converged. Ratings agencies and issuing banks were perhaps too cozy and this led to optimising the risk profile of mortgage backed securities to achieve AAA ratings.

Carbon credits are ascribed value because they are the mechanism by which man-made or anthropogenic
global warming (AGW) is being addressed. The AGW hypothesis that man’s CO2 emissions are causing
runaway warming, is premised on climate models and claims of unprecedented temperatures. By the
scientific method, the onus of proof is on those proposing the hypothesis.

The AGW theory proposes that increased CO2 in the atmosphere is absorbing more long wave radiation from
Earth’s surface and this heat is radiated back, causing warming. Positive feedbacks are also claimed,
suggesting that increased CO2 multiplies the greenhouse heating effect, creating a “tipping point” from which
there is no recovery.

This additional heat should be observed in the mid-troposphere over the tropics because that is where most heat is emitted but satellite and weather balloon data reveal no evidence of this heat, contrary to climate model predictions. This one fact destroys the AGW hypothesis. As Albert Einstein said, “No amount of experimentation can ever prove me right; a single experiment can prove me wrong.”

During the Medieval Warm Period the Vikings settled and farmed in Greenland which, together with other
evidence, suggests today's temperatures are not unprecedented. The settlements collapsed around 1400AD
with the onset of the Little Ice Age which lasted until the 19th century. Pepys wrote of the Great Frost Fair of
1683 and skating on the Thames when the river and surrounding estuary froze for weeks over winter. That
temperatures have been rising since is neither surprising nor alarming.

More than 700 international scientists made submissions to the US Senate, dissenting from the AGW
“consensus.” Some wrote of the politicised environment in which scientists are afraid to speak out for fear of
losing credibility and funding. John McLean analysed contributions to the IPCC's Fourth Assessment Report
and found only 53 climate science authors and 5 reviewers explicitly support the claim of significant human
influence on climate. 166 climate scientists have written to UN Secretary General, Ban Ki Moon, challenging
him to provide proof of man-made global warming.

The IPCC exists to assess “human induced” climate change which has led to a structural bias in climate
science funding and reporting. Earth’s climate is a natural, chaotic, cyclical system which responds to solar
cycles and oceanic oscillations. Evidence of these cycles is suppressed or dismissed by the IPCC and
ignored by the media. Relying on third parties with a vested interest in, and prior commitment to, man-made
global warming will not reveal the truth.

This week’s Thought of the Week is contributed by Clive Menzies. Clive is a director of Fund Building Limited,
a third party marketing firm. Links to climate science information are available at together
with a podcast of the CISI presentation.

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