Subprime Carbon Testimony

Michelle Chan of Friends of the Earth testified that traditional cap-and-trade systems are prone to speculative bubbles and regulatory gaps, drawing parallels to the 2008 financial crisis. She warns that carbon offset credits and complex derivatives could lead to 'subprime carbon' risks where securities are based on non-existent or failing emission reductions. To avoid these risks, she advocates for the McDermott bill, which excludes carbon offsets and implements a stable carbon price to prevent boom-bust cycles.

• Carbon markets in the US could reach a value of $2 trillion by 2020, potentially becoming the world's largest derivatives market, driven largely by speculators rather than entities seeking compliance with carbon caps.
• The use of carbon offset credits creates a risk of 'subprime carbon,' where companies may sell credits for projects that do not exist or fail to deliver actual emission reductions, leading to a potential collapse in derivative values.
• Financial innovation in carbon markets can mirror the structure of mortgage-backed securities; for instance, Credit Suisse created a $200 million deal bundling offset projects into tranches for secondary markets.
• Traditional cap-and-trade systems are viewed as risky due to a lack of comprehensive regulation over complex value chains that may include projects in India and Cameroon.
• The McDermott bill is proposed as a safer alternative because it prohibits carbon offsets, prevents the creation of exotic financial products, and establishes a stable carbon price to avoid boom-bust cycles.

APA

Chan, M. (2009). Subprime Carbon Testimony. Friends of the Earth. https://foe.org/blog/2009-03-subprime-carbon-testimony/

Chicago

Chan, Michelle. Subprime Carbon Testimony. Friends of the Earth, 2009. https://foe.org/blog/2009-03-subprime-carbon-testimony/.

Wikipedia

{{cite press release |last1=Chan |first1=Michelle |title=Subprime Carbon Testimony |publisher=Friends of the Earth |date=27 March 2009 |url=https://foe.org/blog/2009-03-subprime-carbon-testimony/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{chan2009subprime, author = {Chan, Michelle}, title = {{Subprime Carbon Testimony}}, publisher = {Friends of the Earth}, year = {2009}, month = mar, url = {https://foe.org/blog/2009-03-subprime-carbon-testimony/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }