Wednesday, February 17, 2010
RISK MANAGEMENT - COLLECTIVE SELF-INSURANCE
Contrary to the mythunderstandings spread like superphosphate on a windy day by people who do not understand the structure and dynamics of markets, no soil carbon trading program forces the individual farmer to carry the risk of carbon lost to fire, drought, etc. The CCX and its affiliates use a "Buffer Pool" of credits. For every 5 tonnes of CO2-e a farmer submits in the CCX world, only 4 can be sold. 20% are retained in a vault, never to be sold, as a surety against catastrophic or man-made losses. To reflect the increased danger of bushfire and drought in Australia, the Prime Carbon system puts one tonne in the vault for every tonne sold. The farmer is therefore part of a large collective self-insurance system. The International Federation of Agricultural Producers calls it a "collective persistence" -our version of The Permanence Principle is as dynamic as Carbon itself.
Posted by Michael Kiely at 12:15 PM