Wednesday, January 26, 2011

EPA /Treasury/SEC Report Says: "Oversight sufficient for US carbon derivatives market"

Welcome to the exciting world of horse>barn-door regulation.
From Platts:
The US Commodity Futures Trading Commission can rely on its enhanced authority contained in the Wall Street Reform and Consumer Protection Act to oversee the country's derivatives market for carbon dioxide allowances and offsets in an effective manner, an interagency report concluded.

"The current legal framework for oversight of derivative markets, as enhanced by the Dodd-Frank Act when it becomes effective in July 2011, will provide for robust and effective oversight of carbon derivatives markets and closely linked derivative markets, such as those based on energy commodities," the study said.

The Dodd-Frank Act, which Congress passed in 2010, instructed the CFTC to lead an interagency group tasked with studying and issuing a report on oversight of existing and prospective carbon markets. That report was due to Congress by Tuesday.

The only mandatory emission allowance program for greenhouse gases in the US is the Regional Greenhouse Gas Initiative, a 10-state cap-and-trade program stretching from Maine to Maryland.

California is establishing what would be the second mandatory cap-and-trade program beginning in 2012.

Congress' efforts to set up a federal GHG cap-and-trade program have failed to date.

The existing CO2 market includes the trading of derivative products, such as swaps, tied to underlying allowances and offsets. These derivatives already receive various levels of oversight, the report said.

The Dodd-Frank bill will add another layer of oversight by regulating over-the-counter swaps, and requiring swaps to be subject to trading, reporting and clearing requirements, the study said....MORE