When it comes to global warming there is one thing that both sides of Australian politics agrees on: market forces are the best way of dealing with it.

Prime Minister John Howard at the weekend told his party that an emission trading scheme was the way to go. Kevin Rudd committed the Opposition to the same kind of thing months ago.

The argument between the two leaders now is at the fringes, with each pretending that he would administer this new way of curbing carbon dioxide emissions better than the other. Neither has the courage to spell out to voters before the election what the consequences will be. Neither Party wants to admit that there might be a better and more efficient way than giving hedge funds and other financial speculators a new plaything. Talking about the alternative would require using the dreaded word taxation and that is a no-no for the politicians less than six months away from an election.

Evidence that there is a case for looking at an alternative to the market based solution was given in Britain’s Guardian newspaper at the weekend under the headline: Truth about Kyoto: huge profits, little carbon saved.

I am no scientist, but as The Guardian is not normally an outlet for climate change deniers I was taken with the conclusion by the author Nick Davies that the carbon trading markets introduced by the United Nations and the European Community in January 2005 “have earned fortunes for speculators and for some of the companies which produce most greenhouse gases and yet, through a combination of teething troubles and multiple forms of malpractice and possibly fraud, they have delivered little or no benefit for the environment.” Among the examples given was this one:

There are doubts about the validity of some of these CERs, on two separate grounds. First, some of them appear to breach the CDM’s requirements for sustainable development – 53% of the existing CERs come from just six monster projects, in India, China and South Korea, all of which engage in the most controversial form of carbon reduction. They manufacture refrigerant which produces as a side effect a gas called HFC-23. Although carbon dioxide is the most common greenhouse gas, HFC-23 is 11,700 times more likely than carbon dioxide to encourage global warming. Refrigerant companies find it relatively cheap to instal an incinerator to burn the HFC-23 and, once that is converted into certified reductions of emission, each tonne saved can be sold as 11,700 carbon credits. These companies are now earning millions of euros from these credits – more than from selling their refrigerant products.

The environmental problem is two-fold, first that HFC factories tend to pour out other pollutants which don’t happen to be greenhouse gases but which are unpleasant or dangerous for local communities; and second, that the potential profits from burning HFC-23 are so great that companies are being encouraged to expand production of refrigerants so they can produce more HFC-23 to incinerate, thus increasing the net amount of pollution.

Secondly … there is evidence that a significant percentage of current and future CDM reductions, possibly as many as 20%, may have been wrongly checked. This effects not just the 50m tonnes of CERs which have been issued already, but a massive quantity which is sitting in the pipeline as a result of hedge funds pouring an estimated €4,000m into high-profit carbon projects.

The Guardian story ended with the statement that environmental groups argue that there never was a justification for attempting to tackle climate change by creating a carbon market, but that kind of comment might be expected from the left leaning English daily. What did surprise me in my weekend reading was finding that pillar of free market liberalism The Economist sharing the scepticism about the effectiveness of trading schemes. “A carbon price can be established either through a tax or through a cap-and-trade system,” the magazine said in its editorial, “such as the one Europe adopted after signing up to Kyoto. A carbon tax would be preferable, because companies would then be able to build a fixed price into their investment plans; but businesspeople and politicians are both strangely averse to the word ‘tax’. A cap-and-trade system can be made to work, but the price has to settle at a level that affects commercial decisions. Europe’s hasn’t: the price has been too volatile, and, for much of its existence, too low, to shift investment patterns much.”

Talking about the price, I notice, is what Messrs Howard and Rudd are studiously avoiding here in Australia.