CARBON is set to be the next bubble, one that could make the US housing market crash look like a picnic.
One reason the US market collapsed was that no one was minding the store when companies were trading exotic and little understood derivatives, such as the credit default swaps that almost destroyed American International Group. Carbon credits are designed to reduce greenhouse gas emissions by selling carbon as futures or forward contracts at a certain quantity and price. They are derivatives; bets on the future.
Commissioner Bart Chilton from the US Commodities Future Trading Commission told The Financial Times last year that carbon could be the world's biggest derivatives market in five years. Experts estimate it to be worth between $2 trillion and $3.5 trillion. Read more.