Banks and other investors are pulling out of the carbon market after government leaders at last month’s meeting in Copenhagen failed to come up with new emissions targets beyond the current Kyoto Treaty, which ends in 2012. According to a recent report  [PDF] in the UK Guardian, a number of carbon financiers have already begun leaving banks in London due to a lack of activity and a pull-back in investment demand.

This should come as little surprise, considering that the demand for carbon, and therefore its price, was always derived by political decree. Now, with government leaders unable to reach an agreement on a post-Kyoto Protocol, banks and other investors are beginning to grow wary of the carbon market.

According to Paul Kelly, chief executive of EcoSecurities, a developer of clean energy projects, this political indecision is, indeed, the reason for the sudden chills in the carbon market.

“The lack of regulatory certainty in the post 2012 world affects the market’s view of what CERs [carbon credits from clean energy projects] will be worth and subsequently will constrain financing for projects,” he told the Guardian. “If you had an agreement at Copenhagen with a bit more detail, people would be more willing to take risk.”

Probe International, a carbon credit critic, believes the market is a recipe for fraud and corruption because neither buyer nor seller benefits from the reduction of carbon. They benefit only from the certificate. Throughout the Third World, carbon credits have also become an important source of cash to help finance hydro dams, monoculture tree plantations and other environmentally damaging enterprises that are construed as having reduced CO2.

Dismantling carbon markets would help the global environment and the poor of the Third World and should be welcomed, says Probe.

For more on our carbon market coverage:

• The next big scam: carbon dioxide
• Russian Roulette: Russia’s surplus of carbon credits too big of a gamble for some
• Group tracks carbon credit trading and issues warning
• Carbon credit scams add to the growing list of alleged fraud cases
• At what cost are carbon credits funding hydro projects in the developing world
• How Kyoto credit scams work
• Carbon Boondoggles