Thursday, March 26, 2009

US Lawmakers, Fearing CO2 Market Crisis, Drafting Tough Rules

From Dow Jones via CNN Money:
Fearing another financial meltdown under a proposed multi-trillion-dollar greenhouse gas trading program, U.S. lawmakers are drafting legislation for strict regulation of the nascent market.

Wall Street banks, hedge funds and institutional investors are under a rain of public indignation and regulatory scrutiny for their role in the current financial crisis. Many legislators are concerned that creating a carbon market may simply give the same players a new opportunity for manipulation and hazardous trading.

"This is a disaster in the making," warned Rep. Greg Walden, R-Ore., ranking member of the House energy subcommittee on oversight and investigations. "If you like the bubbles of the technology market and the housing market, I predict you'll love the bubble that will come from the cap-and-trade market."

Lawmakers blame lax federal oversight of financial markets - particularly subprime loans and the derivatives markets - that allowed institutional investors to engage in highly risky strategies as a fundamental cause of the economic meltdown. Record-high energy prices last year helped to exacerbate the crisis, kicking an ailing economy on its way down.

A consensus has emerged that at least part of the reason for oil's rocket to near $150 a barrel and subsequent plunge stems from speculative investors plowing cash into the futures market and then dumping assets to raise cash.

Now the federal government is creating a new, multi-trillion-dollar market.

Democratic leaders, including President Barack Obama, are pushing legislation that would cap greenhouse gas emissions thought to cause global warming. Emission allowances would then be allocated to emitters or auctioned off to the highest bidder, which the administration estimates could raise $650 billion to $ 2 trillion in "climate revenues" over the next decade.

A cap-and-trade law would create a market - including for derivatives of emission allowances - for carbon emissions and would multiply trading opportunities for emitters, traders, brokers and investors.

Cutting A Fat Hog

"I attended a recent meeting of an organization interested in [climate change legislation], and guess who it was," Rep. John Dingell, D-Mich., said at an energy forum last week. "It was a bunch of good-hearted Wall-Streeters ... getting ready to cut a fat hog.">>>MORE