CFTC chair calls for comprehensive regulation of emissions markets

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Nov. 4 -- Comprehensive regulation of financial derivatives will also need to be a critical component of a well-functioning domestic emissions trading market, US Commodity Futures Trading Commission Chairman Gary G. Gensler said on Nov. 3.

“As Congress moves forward with potential cap-and-trade legislation, I believe it should fully regulate the expanded carbon trading markets—including the futures market, the OTC market, and the cash market—without exception,” Gensler said in an address to the International Emissions Trading Association’s 2009 fall trading symposium.

“Ensuring transparency, protecting the price discovery function, and addressing financial risk are every bit as critical for emissions markets as for other markets,” Gensler said, adding, “It is crucial to ensure that carbon markets function smoothly, efficiently, and transparently. Effective regulation of carbon allowance trading will require cooperation on the parts of several regulators.”

Gensler said six regulatory components will need to be considered, including standard setting and allocation, compliance with emissions caps and offset requirements, record-keeping and registry maintenance, trade execution system oversight, clearing of trades oversight, and protection against fraud, manipulation, and other abuses.

The first three components, which Gensler said represent the “cap” portion of cap-and-trade, fall within other regulatory agencies’ expertise. CFTC is best equipped to handle the remaining components since it already fills this role in existing emissions trading programs, he indicated.

Lists examples
For example, the US Environmental Protection Agency issues sulfur dioxide and nitrogen oxide allowances under the federal acid rain, NOx budget trading, and clean air market programs, he said. On a smaller scale, 10 states from Maine to Maryland form the Regional Greenhouse Gas Initiative and issue GHG allowances, Gensler added.

“In each case, other entities issue allowances, ensure compliance, and maintain the registry. The constant, however, is that the CFTC regulates the emissions futures trading markets,” he explained. “In other words, the CFTC has a great deal of experience regulating the ‘trade’ part of cap-and-trade.” It already oversees contracts based on sulfur dioxide, NOx, and carbon dioxide allowances and offsets listed on the New York Mercantile Exchange and Chicago Climate Futures Exchange, Gensler said.

“In most respects, emissions contract markets operate similarly to other commodity markets the CFTC regulates,” he said, adding, “While each contract—such as SO2, wheat, treasury bills, or natural gas—presents its own unique challenges, the regulatory scheme is essentially the same.”

He said CFTC has thorough processes to ensure that exchanges have procedures in place to protect market participants and ensure fair and orderly trading, that products are designed to minimize potential manipulation, and that exchanges comply with the law and regulations.

Additional oversight
Its compliance staff monitors operations to ensure that exchanges are enforcing their rules and customers are protected from abusive practices. Its surveillance staff watches for signs of manipulation or congestion and determines how to best address market threats. “We have the authority to set and enforce position limits, and our enforcement staff is actively prosecuting cases,” Gensler said.

If Congress passes cap-and-trade legislation, CFTC would work with other regulators to implement appropriate additional safeguards, he noted. “There may be specific facets of carbon markets that require particular protections, and I look forward to working with Congress, market participants, and the public to offer the commission’s expertise in considering those,” he said.

“As a foundation, the markets should benefit from the protections that we currently have against fraud, manipulation, and other abuses as directed by the Commodity Exchange Act coupled with any new protections Congress is considering for the OTC derivatives markets,” said Gensler.

“We also must ensure that all transactions in both the carbon futures and cash markets are promptly reported and that a central registry is updated at least on a daily basis,” he said, adding, “With immediate registry of trades, it will be easier for regulators to identify manipulation in the markets.”

Gensler said he considers it important for companies to be able to make long-term capital commitments and hedge their carbon emissions allowances’ long-term price risk. “That is why it is critical to get the regulatory oversight right of both the futures markets and the over-the-counter markets that may develop out of a cap-and-trade program,” he maintained.

Contact Nick Snow at nicks@pennwell.com.

Related Articles

Senate passes Defense bill with BLM drilling permit program provision

12/15/2014 The US Senate approved a Department of Defense appropriations bill on Dec. 13 containing a provision extending and making permanent a drilling perm...

Mitigating methane

12/15/2014

Among greenhouse gases, methane should be particularly amenable to deliberate cuts in emissions.

Falling prices may pose new test for China oil policies, speakers say

12/15/2014 China, which successfully revised its oil strategy in response to new technologies since 2008, could face fresh tests if prices stay low for a prol...

Study finds small subset of wells accounts for most methane emissions

12/15/2014 A small subset of natural gas wells are responsible for most methane emissions from US natural gas production, said a study from the University of ...

API: Producers reducing methane emissions already

12/15/2014 US oil and gas producers are reducing wellhead methane emissions already and don't need ill-conceived, overly prescriptive federal regulations, Ame...

Speakers say methane controls just part of complete climate strategy

12/15/2014 Reducing oil and gas operations' methane emissions is an essential, but far from the only, part of a comprehensive climate strategy, speakers at a ...

EPA approves Magellan’s Corpus Christi splitter project

12/12/2014 The US Environmental Protection Agency has issued a final greenhouse gas prevention of significant deterioration construction permit to Magellan Pr...

US needs more data before ending crude export ban, House panel told

12/11/2014 Much more environmental impact information is needed before the US can reasonably remove crude oil export limits, a witness told a House Energy and...

BOEM raises offshore oil spill liability limit to $134 million

12/11/2014 The US Bureau of Ocean Energy Management increased the liability limit for oil-spill related damages from offshore operations to $134 million from ...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected