As this post by James suggests, the intersection of climate change mitigation and the virtualization of capitalism is a potentially dangerous place. If you thought credit default swaps were ephemeral, just wait until utilities, governments, and financial institutions start to sink wealth into tradable carbon credits. Market-based pollution programs are beautiful things from a certain perspective, but the soundness of the traded commodity is always subject to political and legal vagaries.
Last summer, we got a preview of what happens when such a program hits a snag. The DC District Court overturned the Clean Air Interstate Rule, a set of new regulations promulgated by the EPA that required tighter controls on certain utility emissions. The program involved eventually doubling the surrender rate for SO2 allowances, so when the court order came down, the value of future credits tanked. Unless CO2 trading can garner broad political and legal legitimacy, the carbon market may prove to be another brilliantly designed incinerator of capital.