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Carbon emissions trading might be useless tackling climate change but it is highly profitable for the financial engineers behind it.

The Godfather of pollution trading is an American called Richard Sandor, famous as one of the founders of financial derivatives in the 1980’s at junk bond trader Drexel Burnham Lambert, where he pioneered the “collateral mortgage obligations” that eventually brought the financial markets to their knees.

He was also architect of the first pollution permit trading scheme (in sulphur emissions) in the US in the 1990’s.Now he chairs the company controlling more than 80 percent of EU carbon emissions trading, Climate Exchange plc, which regularly launches “innovative” carbon products such as daily futures contracts and has set up trading exchanges in China, Canada and Australia.

Sandor meanwhile has been a big mover behind plans for a mandatory trading system in the US that would see his company’s income multiply.Under Sandor and chief executive and offshore insurance specialist Neil Eckert, Climate Exchange plc owns the European Climate Exchange based in London’s Bishopsgate, as well as the Chicago Climate Exchange and the Chicago Climate Futures Exchange.Business is especially booming in London, as Eckert boasted in a results announcement last week.

“ECX had a wonderful year and with the continuing EU discussion of an anticipated 30 percent cut (in emissions) by 2020 and particularly the move to 100 percent auctioning (of allowances) in 2011, shows significant long term growth potential.

Last year Sandor earned $1 m and Eckert £575,000.Sandors shares in the company are worth more than £40 m, and Eckert’s around £5 m on top of £7m worth of options.These riches came on the back of operating profits last year of £11.5 m, made almost entirely in London where trading in £70bn worth of emissions allowances by the European exchange’s 100 members, including such renowned environmentalists as Shell, Barclays and RBS, earned the exchanged £11.4 m.

Not that any of this finds its way into the governments coffers in the form of tax that might be invested in slightly more useful environmental measures.Climate Exchange plc is registered in the tax haven of the Isle of Man, where, according to its accounts, ”it is subject to tax at zero percent” having been set up there when it was simply a fund company in order to avoid capital gains tax.

The company also claims that its operating subsidiaries “are residents in various jurisdictions where they are subject to local rates of taxation”.In Britain this might be thought to refer to the company ostensibly running the exchange in Bishopsgate, European Climate Exchange Ltd.

But its accounts, filed quietly at Companies house, show that it is owned by an Irish company with exactly the same name. This is the company that earns the commissions.The synonymous British company is reimbursed for its costs of running the exchange while the profits that accumulate in Dublin are then returned to its ultimate parent company Climate Exchange plc in the Isle of Man  in the form of tax-free interest payments on the substantial loans from Douglas that fund the operation.

This kind of tax planning requires plenty of carbon intensive jetting off to board meetings in which ever countries the directors want their companies to be tax resident.This might not do much for the planet but it will good for business when airlines are forced into the trading scheme from 2012

 
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