Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
(i) Short term vs long term

The point is that "term" doesn't come into it in an equity-based structure like this. "Time" is not a consideration as it is in a deficit-based system.

(ii) the unquantifiable nature of the risk

Nothing new here. Price risk over time is price risk over time. The difference is that I'm proposing a simple new way in which risk may be bought and sold - without the "gearing" of a futures contract.

Price Risk is and always will be in the eye of the beholder.

(iii) All the investment has to be very upfront

Indeed, which is why the government should prime the proposed "Pool" from a carbon tax ($20 a barrel?).

The redeemable energy units they will receive in return for the investments enabled by the Pool will be distributable as they see fit, ideally as an "energy dividend".

Government should also create credits (as the Bank of England is doing with Northern Wreck) to invest in units. To those who say that this is inflationary, I would say that it is less inflationary than having banks create the credit, but with an interest burden attached...

(iv) The market makers in the "redeemable units" will cream off huge service fees which will make the whole thing unattractive for a small investor

What a pessimist you are! Units in a "Pool" like this will undoubtedly be acceptable in exchange by virtually anyone, for anything. Because they know it will be acceptable against something of value to them.

But note that these units of energy "ownership" are not like futures contracts with lots of "prompt dates", fragmenting liquidity, with money creamed off from fund investors as positions are "rolled" from month to month.

The more liquid the pool, the less market-makers will cream off.

This market, as pools link with pools to form a networked "Energy Clearing Union", will comprise a simple asset class of "ownership" of x Kilowatt Hours. Essentially an energy-based currency - an "energy dollar" maybe.

Lots of issues, of course, but nothing the assembled brains of ET couldn't handle.

Kilowatt Cards
guy has essentially already done it, using his own money, just to show what's possible.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jan 19th, 2008 at 08:46:28 AM EST
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