Carbon Finance: The Financial Implications of Climate Change, by Sonia Labatt and Rodney R. White, Wiley Finance, $85.00, 268 pages.
This is one of the most interesting, important and confusing books I have read in several years. This book attempts to provide background on the physics and economics of global warming and the financial problems and opportunities it creates. How important is global warming? Consider the heat produced by a single birthday candle on an area the size of a card table. Now imagine the entire earth covered with imaginary card tables and candles, except that the imaginary candles are producing real heat. Thatís the amount of extra heat global warming is adding to the earth, twenty four hours a day, seven days a week. And if we donít do something, sooner or later it will kill us all. By most standards, this is not a good thing.
So why donít we do something about it? One reason is that Dick Cheney and the petroleum producers are right about several important things. If we act to reduce global warming and other countries do not, we might put ourselves at a disadvantage in the global marketplace. More important, from the point of view of petroleum producers, at least, the costs and benefits of reducing global warming are not distributed equally. Very roughly speaking, the costs will be borne by the energy producers while the benefits will be reaped by others, mainly the poor. Many of the beneficiaries are not even customers. Feeling morally superior to Dick Cheney is easy and fun, but letís play fair here. How quick are you to see the truth when it is not in your best interest to do so? Speaking strictly for myself, Iím not as good at this as I should be.
According to the authors of this book, a market in carbon is essentially a market in virtue. If this is true, then this is a major weakness in both this book and the market for carbon. The problem, of course, is that changing peopleís morals is always difficult and sometimes almost impossible. I would argue that the question we should be asking is not, ďHow can we make people good so that we donít all have to die?Ē but ďHow can we insure that the work of keeping us all alive, makes people rich?Ē I donít have an answer to this question either, of course. If I did, the people who wrote this book would be working for me.
In several ways, this is a carefully thought out book. Even better, the authorsí egos are firmly under control. One of the bookís chapters was written by a guest author, as was at least one of the bookís exhibits. On the other hand, this book starts with a three plus page list of acronyms and their explanations. While I appreciated the explanations, I do not see why the acronyms were necessary. Judicious use of a word processor with a find and replace function would have made this book easier to read. Not incidentally, not all of the acronyms in the book are on this list.
Finally, in terms of coverage and presentation of material, this is the worst book I have read in decades. In fact, what came to mind were not other books on modern finance, but the books on investing in commodities and hedge funds written in the seventies and before. I donít think this incoherence is the authorsí fault. I believe that the reason this book is incoherent is the same reason commodity and hedge fund books from the seventies and earlier were incoherent; no one then really understood what the issues were, much less what the solutions are. This implies that stepping into carbon finance now is something like starting a hedge fund in the 1980s. Start now and you could be the next Thomte and Company or the next Tudor Investment Management. If you donít know about Thomte and Company, itís because they melted down sometime in the 1980s. No guarantees. There are billions here for someone sufficiently clever and tenacious. Or death--but that comes for us all.
First Published on http://www.johnlothiannewsletter.com/.