When the high flyers of the exploding carbon trading market touch down later this month for a California Climate Action Registry conference in San Diego, they’ll be feeling good about themselves because their greenhouse emissions from travel are being offset. However, few likely will know that the company providing the offsets for travel quietly filed for bankruptcy protection in a court in Dublin, Ireland, in late February. The filing came after the Irish company, AgCert, failed to deliver offset credits it sold in 2007. Subsequently, it concluded it had little chance to deliver more than a small fraction of the millions of tons of credits it had contracted to provide to its customers this year, according to company financial reports. Offset buyers and planners must stop and reflect on the quality of the credits. That’s because when it comes to AgCert, the credits may be nothing more than a pig in a poke. Indeed, the company’s story speaks volumes about the lack of rigorous regulation of the carbon market and the resulting perils. And as the feds are discussing a taxpayer bailout of financial institutions that are weighing down the economy, the story of AgCert is a cautionary tale for the future of a cap-and-trade market. In just the first half of 2007, the latest period for which there is a publicly available financial report, the company lost 28.5 million euros on revenue of 2.5 million euros. AgCert lost 93.8 million euros in 2006. The publicly traded company, which expanded quickly after being formed in 2002 to tap into the market for offsets created under the Kyoto Protocol’s clean development mechanism, contracted to deliver 7.2 million metric tons of carbon credits to major European companies this year. However, it estimates that the scores of manure-to-energy projects it built and operates–many at Latin American pig farms–will generate just 1.76 million tons of credits, leaving it a few pigsties short. Yet, its apparent decrepit financial state and non-performance have not stopped it from continuing to offer credits to offset emissions from driving and travel at its website DrivingGreen.com (as of writing this). It also apparently continues to arrange offset projects in the U.S., Canada, and other nations to generate credits for sale in voluntary credit markets like the Chicago Climate Exchange. In those markets, U.S. companies are hoping to purchase offsets while they are cheap to hedge against future regulations that require them to slash greenhouse gas emissions at their own facilities. The AgCert credits sold in the U.S. generally are certified through private sector programs. As the debate over the specifics of a U.S. carbon market unfolds–both in Washington and Sacramento as the California Air Resources Board shapes a plan to implement the state’s climate change law–one of the looming questions is where to draw the line between government regulation and self-regulation by the private sector. Apparently, Wall Street would like nothing better than to treat carbon trading the way it has handled sub-prime mortgages: Get in and out fast and make sure someone else is holding the bag when the bottom drops out due to shoddy practices, be it investors or the taxpayers. In many respects the AgCert crash is reminiscent of the 1998 collapse of Long-Term Capital Management, a highly leveraged hedge fund. Then-Federal Reserve Board Chair Alan Greenspan rode to the rescue and bailed out the losses, but failed to enact regulations to fundamentally reform trade in the complicated and opaque new financial instruments spawned by financial industry deregulation during the 1990s. The hedge fund market then grew, as did the market for other financial instruments, culminating in the collapse of BearStearns and other firms in recent months and desperate moves by the Fed and other central banks to prop up the tottering financial sector. It’s the legacy of what some have called “Casino Capitalism.” Now, the carbon market stands to become the next big wave for Wall Street, with New Carbon Finance and other forecasters projecting that the Lieberman-Warner cap-and-trade bill alone will create a trading market worth $1 trillion a year by 2020. Like Long-Term Capital Management a decade ago, AgCert’s story today serves as a cautionary warning. Namely, unless government imposes strong regulations on the private sector in authorizing carbon trading, it too is likely to function more like a casino–that can leave you penniless–than a fair market.