Report Sounds Alarm on Subprime Carbon and Need to Regulate Carbon Markets

Report Sounds Alarm on Subprime Carbon and Need to Regulate Carbon Markets

For Immediate Release

Contact: Nick Berning, 202-222-0748 Michelle Chan, 202-427-3000

WASHINGTON, D.C.–If it is not structured properly, global warming legislation could lead to the creation of an enormous, poorly regulated derivatives market with failures mirroring those that led to the current financial crisis, according to a report released today by Friends of the Earth U.S.

The report, Subprime Carbon? Re-thinking the Worlds Largest New Derivatives Market, finds that existing financial regulations, as well as those in major cap-and-trade bills, are inadequate to govern carbon trading, creating a potentially huge regulatory gap.

Global warming has reached a crisis point, and its imperative that Congress move quickly to put solutions in place, but its also important to be careful and do this the right way from the start, said Michelle Chan, a senior policy analyst at Friends of the Earth and the author of the report. If we arent careful, we could end up creating a massive, poorly regulated derivatives market that not only poses risks to the broader financial markets, but also undermines efforts to save the climate.

The report outlines how lessons from the current financial crisis apply to carbon markets, which could become the largest derivatives markets in the world. In particular, it raises concerns about subprime carbon, risky carbon credits based on uncompleted offset projects (projects designed to sequester or reduce greenhouse gases). Subprime carbon credits may ultimately fail to reduce greenhouse gases and, like subprime mortgages, could collapse in value, yet they are already being securitized and resold in secondary markets. The report recommends that lawmakers include carbon trading in current debates about financial reform, and warns against hastily creating carbon markets without proper oversight.

Fortunately, there are ways to minimize the environmental and financial risks of carbon trading, including prohibiting offsets and creating a stable price path for carbon, Chan said. We should also avoid putting all our eggs in one basket. Although many lawmakers are talking about carbon trading as if its the only way to reduce greenhouse gases, no single approach will solve climate changea diverse set of complementary strategies is needed.

The full report can be viewed at /subprimecarbon.


Friends of the Earth ( is the U.S. voice of the worlds largest grassroots environmental network, with member groups in 77 countries. Since 1969, Friends of the Earth has fought to create a more healthy, just world.