Isramart news:
Now that Cap and Trade is a possibility, there is a rising clamor for a carbon tax instead, from conservative thinktanks like the American Enterprise Institute, outlets like The Washington Times and even directly from Exxon itself. Yet when first introduced by Al Gore, in 1993, the carbon tax was anathema to the fossil industry. What makes a carbon tax now less of a threat than Cap and Trade? It’s the Cap.
The key difference between Cap and Trade and a carbon tax is that a carbon tax controls just the cost of pollution – only a cap limits the quantity.
The “Cap” limits emissions by fossil companies
The Cap in Cap and Trade is the only mechanism for ensuring a total limit to carbon emissions. A Cap is set for the fossil industries as a whole. The Cap on emissions at point-of-entry sources (oil pipelines, coal fields and coal-fired power stations) in the current Cap and Trade bill limits total carbon.
» See also: UN Talks to Include Plan to Reduce Carbon Emissions of Aviation Industry
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The “Trade” funds cost-protection for consumers
The Cap and Trade bill also protects businesses and consumers from rises in fossil energy costs, because it generates funds for subsidies to stop passing-down of costs, to fund fuel efficiency and renewable energy. If businesses and consumers can’t control what kind of energy their power company buys, why should they pay more? Trade would also fund the incentives to help fossil industry itself transition to renewable power and add efficiency measures like combined heating and power.
A carbon tax might not slow the rise of carbon
Under a carbon tax, even though it would be more costly, fossil industries need not change, because they could pass down the costs. A carbon tax would be paid by end users, who are not in a position to invest in renewable power. Even if congress passed subsidies, there would be no upper limit on carbon emissions.
Only a Cap gives fossil companies no choice
The pollution Cap would place a limit on fossil energy. In order to keep generating income, fossil companies would have no choice but to invest in renewable energy and more efficiency. This has been the result in Europe where Cap and Trade has already started the switch to renewable energy, for example the off-shore oil company StatoilHydro investing in off-shore wind.
The new clamor to return to the carbon tax idea is a delaying tactic
Gore’s 1993 BTU tax would have exempted renewables and put a tax on fossil energy. We now hear some of the same oil executives say they prefer a carbon tax. It’s simpler, they now say. Certainly, it delays action if they send Washington back to the drawing board. (Once a carbon tax bill was actually written, the same Feebate type of downstream rebates would likely be built in that the Cap and Trade bill has currently.)
The Cap definitely slows carbon pollution
The Pew Center For Climate Change puts it this way: “But the key difference between a carbon tax and the cap-and-trade approach comes down to the issue of certainty. A tax provides for cost certainty; the cost is fixed because of the tax. Cap and trade, on the other hand, provides for environmental certainty.”
Wednesday, November 11, 2009
Isramart : Carbon credits ‘cure could be worse than the disease’
Isramart news:
Carbon credits — to package and trade offsets to greenhouse gas emissions–won’t work, says McGill University economist Christopher Green.
“This cure could be worse than the disease,” says Green, rejecting the argument of Quebec Premier Jean Charest, who wants the Montreal Exchange to be the carbon market for all of Canada.
As an alternative to Charest’s “cap and trade” proposal for carbon credits, Green proposes a carbon tax.
A carbon tax would cost less, he says, and would pay for “an energy-technology revolution,” finding ways to use less carbon, or no carbon for industrial processes, transportation, heating and cooling.
And he laments that the Copenhagen conference this December, the followup to the 1997 Kyoto gathering on climate change, seems bent on setting “absolutely unrealistic targets” for greenhouse gas reduction, relying on the carbon markets he distrusts.
“We are going to waste another decade,” Green said.
In June, the National Assembly adopted Bill 42, which empowers the province to call on industrial emitters to quantify the greenhouse gases they spew out.
By 2012, Quebec will impose caps on the level of greenhouse gases industries can emit, forcing them to turn to the carbon market.
To explain his plan, Charest harkens back to the 1990s, when Canada took the initiative in dealing with sulphur dioxide given off by coal-fired power generators in the United States, creating acid rain.
“The government of Canada and the provinces decided this issue had to be addressed,” Charest said. “Canada went ahead with a cap on sulphur dioxide emissions and did the regional distribution within Canada and didn’t wait for the Americans to act on this issue.” Subsequently, the Americans adopted cap and trade.
This time the Quebec tail wants to wag the Canadian dog, in co-ordination with Ontario, Manitoba and British Columbia.
The four provinces belong to the Western Climate Initiative, started by California Gov. Arnold Schwarzenegger, to push the cap-and-trade agenda.
Six states–Arizona, New Mexico, Utah, Montana, Washington and Oregon–have joined California in using the WCI to sway the U. S. government to cap and trade.
Green rejects the parallel Charest has drawn between cap and trade for climate change and the success of cap and trade in resolving the acid rain problem.
In 2007, sulphur dioxide emissions had fallen 50 per cent from 1980 levels.
“It certainly worked very well,” Green admitted, noting that reducing sulphur dioxide was limited to about 300 coal-fired plants.
“There are too many emitters to put a price on carbon,” Green said, adding that cap and trade “sounds like something neat,” at first glance.
“But the devil is in the details.” With our cars, lawn mowers and gas barbecues, we are all carbon emitters. As well, major industries and Alberta’s oilsands, which consume the equivalent of one barrel of oil to produce three barrels of synthetic crude oil, make a carbon cap-and-trade system more complex.
Green is also worried about the “subprime” potential of carbon offsets in developing countries.
For instance, banks could package the non-tillage of agricultural land, a way to absorb carbon, just as they packaged dubious mortgages in asset-backed commercial paper.
Planting trees, generating wind energy and carbon capture would also generate tradable carbon credits.
But Green wonders whether the United Nations policing process, to vouch for carbon credits in developing countries, would work.
“There could be counterfeit bills in the carbon market,” he said.
Carbon credits — to package and trade offsets to greenhouse gas emissions–won’t work, says McGill University economist Christopher Green.
“This cure could be worse than the disease,” says Green, rejecting the argument of Quebec Premier Jean Charest, who wants the Montreal Exchange to be the carbon market for all of Canada.
As an alternative to Charest’s “cap and trade” proposal for carbon credits, Green proposes a carbon tax.
A carbon tax would cost less, he says, and would pay for “an energy-technology revolution,” finding ways to use less carbon, or no carbon for industrial processes, transportation, heating and cooling.
And he laments that the Copenhagen conference this December, the followup to the 1997 Kyoto gathering on climate change, seems bent on setting “absolutely unrealistic targets” for greenhouse gas reduction, relying on the carbon markets he distrusts.
“We are going to waste another decade,” Green said.
In June, the National Assembly adopted Bill 42, which empowers the province to call on industrial emitters to quantify the greenhouse gases they spew out.
By 2012, Quebec will impose caps on the level of greenhouse gases industries can emit, forcing them to turn to the carbon market.
To explain his plan, Charest harkens back to the 1990s, when Canada took the initiative in dealing with sulphur dioxide given off by coal-fired power generators in the United States, creating acid rain.
“The government of Canada and the provinces decided this issue had to be addressed,” Charest said. “Canada went ahead with a cap on sulphur dioxide emissions and did the regional distribution within Canada and didn’t wait for the Americans to act on this issue.” Subsequently, the Americans adopted cap and trade.
This time the Quebec tail wants to wag the Canadian dog, in co-ordination with Ontario, Manitoba and British Columbia.
The four provinces belong to the Western Climate Initiative, started by California Gov. Arnold Schwarzenegger, to push the cap-and-trade agenda.
Six states–Arizona, New Mexico, Utah, Montana, Washington and Oregon–have joined California in using the WCI to sway the U. S. government to cap and trade.
Green rejects the parallel Charest has drawn between cap and trade for climate change and the success of cap and trade in resolving the acid rain problem.
In 2007, sulphur dioxide emissions had fallen 50 per cent from 1980 levels.
“It certainly worked very well,” Green admitted, noting that reducing sulphur dioxide was limited to about 300 coal-fired plants.
“There are too many emitters to put a price on carbon,” Green said, adding that cap and trade “sounds like something neat,” at first glance.
“But the devil is in the details.” With our cars, lawn mowers and gas barbecues, we are all carbon emitters. As well, major industries and Alberta’s oilsands, which consume the equivalent of one barrel of oil to produce three barrels of synthetic crude oil, make a carbon cap-and-trade system more complex.
Green is also worried about the “subprime” potential of carbon offsets in developing countries.
For instance, banks could package the non-tillage of agricultural land, a way to absorb carbon, just as they packaged dubious mortgages in asset-backed commercial paper.
Planting trees, generating wind energy and carbon capture would also generate tradable carbon credits.
But Green wonders whether the United Nations policing process, to vouch for carbon credits in developing countries, would work.
“There could be counterfeit bills in the carbon market,” he said.
Isramart : A signal for carbon trading?
Isramart news:
Is all the fuss about EcoSecurities, a carbon trader and carbon offset developer, a sign of confidence that more countries will introduce cap-and-trade schemes?
Bids from an EDF subsidiary was rejected in June and Swedish company Tricorona dropped out of the running in September. Another offer from Guanabara, a vehicle set up by EcoSecurities’ co-founder Pedro Moura Costa, at 90p a share gained support from shareholders with 25.5 per cent of shares, JP Morgan yesterday announced its 100p bid would be recommended by the company’s directors.
The investment bank already owns Climate Care, which deals mainly in voluntary offsets, although they say their projects are carried out to the same standards required by the UN’s carbon development mechanism, under the Kyoto protocol. EcoSecurities, by contrast, invests in projects that are officially accredited under the Kyoto protocol, which are sold into carbon trading markets.
The US is considering legislation that could see it allow 1bn tonnes worth of international carbon offsets to be used each year. But there are two big potential sticking points: the Waxman-Markey bill, as it’s called, may not even get through the Senate. Then, that UN accreditation process will certainly be up for discussion in Copenhagen in December, and it’s not certain that whatever standards are agreed there will be adopted by the US anyway.
As the FT notes, most analysts think the company is worth more than any of those bids, with one suggesting in June it could be valued at 121p a share, based on its cash position and existing carbon portfolio. But the market seems far from getting excited about the outlook for the future of carbon trading just yet.
Is all the fuss about EcoSecurities, a carbon trader and carbon offset developer, a sign of confidence that more countries will introduce cap-and-trade schemes?
Bids from an EDF subsidiary was rejected in June and Swedish company Tricorona dropped out of the running in September. Another offer from Guanabara, a vehicle set up by EcoSecurities’ co-founder Pedro Moura Costa, at 90p a share gained support from shareholders with 25.5 per cent of shares, JP Morgan yesterday announced its 100p bid would be recommended by the company’s directors.
The investment bank already owns Climate Care, which deals mainly in voluntary offsets, although they say their projects are carried out to the same standards required by the UN’s carbon development mechanism, under the Kyoto protocol. EcoSecurities, by contrast, invests in projects that are officially accredited under the Kyoto protocol, which are sold into carbon trading markets.
The US is considering legislation that could see it allow 1bn tonnes worth of international carbon offsets to be used each year. But there are two big potential sticking points: the Waxman-Markey bill, as it’s called, may not even get through the Senate. Then, that UN accreditation process will certainly be up for discussion in Copenhagen in December, and it’s not certain that whatever standards are agreed there will be adopted by the US anyway.
As the FT notes, most analysts think the company is worth more than any of those bids, with one suggesting in June it could be valued at 121p a share, based on its cash position and existing carbon portfolio. But the market seems far from getting excited about the outlook for the future of carbon trading just yet.
Isramart : JPMorgan Bids for EcoSecurities as U.S. Considers Cap and Trade
Isramart news:
Sept. 14 (Bloomberg) –JPMorgan Chase & Co. offered 122.9 million pounds ($203 million) for EcoSecurities Group Plc, topping a rival bid and signaling broader interest in trading pollution credits as the U.S. weighs a cap-and-trade program.
EcoSecurities, manager of the most emission projects overseen by the UN, rose as much as 12 percent in London trading after Carbon Acquisition Co., a wholly owned unit of New York- based JP Morgan, offered 100 pence a share in cash. That exceeds the 90 pence offered by EcoSecurities’s former president and would be the most paid for an emissions-trading specialist.
JPM Morgan is the fourth company this year to consider a takeover of Dublin-based EcoSecurities, whose stock has tripled since the start of the year. The interest from suitors including Electricite de France SA and Sweden’s Tricorona AB may show the long-term viability of emissions trading, said New Energy Finance analyst Aimie Parpia. The bid comes three months after a joint venture of Societe Generale SA paid an undisclosed amount for OneCarbon International BV to tap U.S. demand.
“It looks increasingly likely that we’ll see demand for Certified Emission Reduction credits from the U.S., and JPMorgan is taking a long-term position,” Parpia said in a telephone interview today. “It’s bullish for the long term.”
The JPMorgan bid is “fair and reasonable,” EcoSecurities said in a statement today. Shareholders representing 19.91 percent of the firm, including co-founder Marc Stuart and Credit Suisse Group AG, have pledged to accept the offer from the unit of JPMorgan, the second-biggest U.S. bank. More than 25 percent of EcoSecurities shareholders agreed to sell shares to Guanabara Holdings BV, the Dutch company set up by from Pedro Moura Costa to attempt a takeover bid.
‘Fairly Dramatic’
“They’d need to come up with something fairly dramatic,” Adam Forsyth, a London-based analyst at Matrix Corporate Capital LLP, said about Guanabara.
Guanabara said in a statement today it is reviewing its position. The company raised its July 17 bid for the emissions- trading firm on Sept. 1 after its earlier bid won limited support from shareholders. The Guanabara bid includes funding from BTG Investments LP, led by Andre Esteves, former head of fixed income, currencies and commodities at Zurich-based UBS AG. Moura Costa is a co-founder of EcoSecurities and served as president until resigning on April 23.
EcoSecurities creates and trades Certified Emission Reduction credits, or CERs, which are overseen by the UN. The so-called offset credits are part of the UN’s Clean Development Mechanism, the world’s second-largest carbon market, and can be used for compliance in the European Union’s carbon market, the largest greenhouse-gas trading program.
U.S. Demand
There will be demand for offsets from the European Union as well as the U.S., said Jerome Malka, managing director of the Societe General joint venture Orbeo, in June. A proposal by U.S. representative Henry Waxman would allow as much as 2 billion metric tons of offsets a year starting 2012.
The supply of CERs may fall to as little as 118 million metric tons this year from 138 million tons in 2008, said Alessandro Vitelli, a director at London-based IDEACarbon.
The UN is seeking this year to set international climate- protection laws starting 2013 to determine the fate of the Clean Development Mechanism of the 1997 Kyoto Protocol.
JPMorgan also owns Climate Care, a developer of carbon offset projects, which it bought in 2008.
EcoSecurities was advised by RBS Hoare Govett Ltd.
U.S. lawmakers are likely to reach a compromise on a new climate bill early next year, paving the way for implementation in 2012, analysts at Deutsche Bank said July 31.
The climate-protection law, written by Democratic Representatives Henry Waxman of California and Edward Markey of Massachusetts, would also establish a U.S. emissions-trading program. It calls for the government to cap emissions in industries responsible for 85 percent of U.S. greenhouse gas.
Sept. 14 (Bloomberg) –JPMorgan Chase & Co. offered 122.9 million pounds ($203 million) for EcoSecurities Group Plc, topping a rival bid and signaling broader interest in trading pollution credits as the U.S. weighs a cap-and-trade program.
EcoSecurities, manager of the most emission projects overseen by the UN, rose as much as 12 percent in London trading after Carbon Acquisition Co., a wholly owned unit of New York- based JP Morgan, offered 100 pence a share in cash. That exceeds the 90 pence offered by EcoSecurities’s former president and would be the most paid for an emissions-trading specialist.
JPM Morgan is the fourth company this year to consider a takeover of Dublin-based EcoSecurities, whose stock has tripled since the start of the year. The interest from suitors including Electricite de France SA and Sweden’s Tricorona AB may show the long-term viability of emissions trading, said New Energy Finance analyst Aimie Parpia. The bid comes three months after a joint venture of Societe Generale SA paid an undisclosed amount for OneCarbon International BV to tap U.S. demand.
“It looks increasingly likely that we’ll see demand for Certified Emission Reduction credits from the U.S., and JPMorgan is taking a long-term position,” Parpia said in a telephone interview today. “It’s bullish for the long term.”
The JPMorgan bid is “fair and reasonable,” EcoSecurities said in a statement today. Shareholders representing 19.91 percent of the firm, including co-founder Marc Stuart and Credit Suisse Group AG, have pledged to accept the offer from the unit of JPMorgan, the second-biggest U.S. bank. More than 25 percent of EcoSecurities shareholders agreed to sell shares to Guanabara Holdings BV, the Dutch company set up by from Pedro Moura Costa to attempt a takeover bid.
‘Fairly Dramatic’
“They’d need to come up with something fairly dramatic,” Adam Forsyth, a London-based analyst at Matrix Corporate Capital LLP, said about Guanabara.
Guanabara said in a statement today it is reviewing its position. The company raised its July 17 bid for the emissions- trading firm on Sept. 1 after its earlier bid won limited support from shareholders. The Guanabara bid includes funding from BTG Investments LP, led by Andre Esteves, former head of fixed income, currencies and commodities at Zurich-based UBS AG. Moura Costa is a co-founder of EcoSecurities and served as president until resigning on April 23.
EcoSecurities creates and trades Certified Emission Reduction credits, or CERs, which are overseen by the UN. The so-called offset credits are part of the UN’s Clean Development Mechanism, the world’s second-largest carbon market, and can be used for compliance in the European Union’s carbon market, the largest greenhouse-gas trading program.
U.S. Demand
There will be demand for offsets from the European Union as well as the U.S., said Jerome Malka, managing director of the Societe General joint venture Orbeo, in June. A proposal by U.S. representative Henry Waxman would allow as much as 2 billion metric tons of offsets a year starting 2012.
The supply of CERs may fall to as little as 118 million metric tons this year from 138 million tons in 2008, said Alessandro Vitelli, a director at London-based IDEACarbon.
The UN is seeking this year to set international climate- protection laws starting 2013 to determine the fate of the Clean Development Mechanism of the 1997 Kyoto Protocol.
JPMorgan also owns Climate Care, a developer of carbon offset projects, which it bought in 2008.
EcoSecurities was advised by RBS Hoare Govett Ltd.
U.S. lawmakers are likely to reach a compromise on a new climate bill early next year, paving the way for implementation in 2012, analysts at Deutsche Bank said July 31.
The climate-protection law, written by Democratic Representatives Henry Waxman of California and Edward Markey of Massachusetts, would also establish a U.S. emissions-trading program. It calls for the government to cap emissions in industries responsible for 85 percent of U.S. greenhouse gas.
isramart : CFTC can oversee trade part of carbon ‘cap n trade’
Isramart news:
Over the past year, we have witnessed the consequences that regulatory gaps and inconsistencies can have on our financial system, the economy and the American people. As Congress moves forward with potential cap-and-trade legislation, I believe it should ensure that there is a comprehensive regulatory framework over the expanded carbon markets – both the futures market and the cash market – without exception.
Proposed cap-and-trade initiatives would impose a ceiling on the total amount of greenhouse gasses that covered entities can emit and expand the market for pollution rights, which are known as “allowances.” An allowance is a limited authorization by the government to emit a quantity of carbon dioxide equivalent. The allowance could be traded, used by regulated parties to comply with emissions caps or potentially banked. Along with allowances, cap-and-trade programs for greenhouse gases utilize “offset credits” – credits given for activities that reduce, trap or sequester carbon.
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It is crucial to ensure that the carbon market functions smoothly, efficiently and transparently. Effective regulation of carbon allowance trading will require cooperation on the parts of several regulators. There are five regulatory components of carbon markets that I believe should be considered:
1. Standard setting and allocation;
2. Recordkeeping (maintaining a registry);
3. Overseeing trade execution system;
4. Overseeing clearing of trades; and
5. Protecting against fraud, manipulation and other abuses.
The first two components – the actual allocation of allowances and offset credits, and recordkeeping (other than recordkeeping of the trades) – fall within the expertise of other agencies. In other words, others are better equipped to regulate the “cap” part of “cap-and-trade.”
For example, the EPA currently issues allowances on sulfur dioxide and nitrogen oxide as mandated under the Acid Rain, NOx Budget Trading and Clean Air Market Programs. On a smaller scale, a conglomeration of ten states in the northeast and mid-Atlantic form the Regional Greenhouse Gas Initiative and issue allowances on greenhouse gas emissions. In each case, other entities issue allowances and maintain the registry. The constant, however, is that the CFTC regulates the emissions futures trading markets. In other words, the CFTC has a great deal of experience regulating the “trade” part of “cap-and-trade.”
Specifically, we have broad experience in the latter three components of carbon trading: regulating trade execution systems and clearing of trades and guarding against fraud, manipulation and other abuses. The Commission already oversees trading and clearing of futures and options contracts based on sulfur dioxide, nitrogen oxide and carbon dioxide allowances and offsets listed on the New York Mercantile Exchange and the Chicago Climate Futures Exchange. Additionally, just last month, under direction from Congress in last year’s Farm Bill, the Commission put out a proposed determination for public comment to classify the Carbon Financial Instrument contract traded on the Chicago Climate Exchange as a significant price discovery contract. This would give the CFTC full oversight authority over the contract, giving us additional experience regulating cash emissions contracts. The Commission has abundant experience in the regulation of centralized marketplaces, and should Congress seek to regulate cash markets for emission instruments, the Commission is well-suited to carry out that function.
In most respects, emissions contract markets operate no differently than the other commodity markets the CFTC regulates. While each contract – such as sulfur dioxide, soybeans, treasury bills or natural gas – presents its own unique challenges, the regulatory scheme is essentially the same. Carbon markets have similarities to several different markets that fall within our regulatory authority. For example, carbon allowances and offsets are similar to agriculture commodities in that there is a yearly “crop” and important programmatic regulations governing the nature of the product. At the same time, carbon contracts have similarities to financial products. For example, government-issued allowances and offset credits would be similar to Treasury-issued debt instruments. Futures contracts on Treasury debt are among the most actively traded CFTC-regulated products.
The emissions trading markets that the CFTC currently regulate are small relative to the expected growth of the carbon market as a result of cap-and-trade legislation. Still, the agency has the expertise to apply the same oversight to the much larger, national and mandatory market.
The Commission 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. The Commission’s compliance staff actively monitors operations to ensure that exchanges are enforcing their rules and that customers are protected from abusive practices. The oversight of clearing is an integral part of the CFTC’s regulatory structure.
The Commission has extensive experience and a well-established program to ensure derivatives clearing organizations and clearing firms have safeguards to ensure orderly clearing and settlement of transactions and safekeeping of customer funds. Our surveillance staff keeps a close eye 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. In the past year, the CFTC has expanded the scope of its existing energy advisory committee to create the Energy and Environmental Markets Committee, which significantly enhances the CFTC’s ability to anticipate and address the full panoply of regulatory issues pertaining to emissions trading markets.
The CFTC has wide-ranging transparency efforts designed to provide as much information to the American public as possible. Specifically, the Commission publishes weekly Commitments of Traders reports, which, starting last week, include disaggregated data to more accurately depict the makeup of the futures and options markets. The Commission also publishes quarterly data on index investment, a “This Month in Futures Markets” report and annual financial data for futures commissions merchants and futures industry registrants.
Should Congress pass cap-and-trade legislation, the CFTC would work with other regulators and market users to ensure that all transactions in both the carbon futures and cash markets are promptly reported and that a central registry is updated at east on a daily basis. With immediate registry of trades, it will be easier for regulators to identify manipulation in the markets.
The CFTC, however, would need additional resources for new staff and technology to effectively regulate the expanded carbon markets. The Commission is just this year getting back to the staffing levels that it had in the late 1990s. Since then, the markets grew five-fold and the number of contracts grew six-fold, but the agency’s staff was cut by more than 20 percent. To take on additional oversight responsibilities, we will continue to work with this Committee and the Appropriations Committees to secure additional resources.
As Congress moves forward and possibly enacts cap-and-trade legislation, I look forward to working with the US Senate Committee on Agriculture, Nutrition and Forestry to ensure that the new markets are comprehensively and effectively regulated. The CFTC is the exclusive regulator of futures markets. I believe that we have the expertise and experience necessary to help regulate the growth in carbon futures and cash markets that will occur if cap-and-trade becomes law. We must protect against the same hazards in the carbon markets that we currently guard against in other commodity futures markets: fraud, manipulation and other abuses. (Gary Gensler is Chairman, CFTC. Based on Testimony before US Senate Committee on Agriculture, Nutrition and Forestry)
Over the past year, we have witnessed the consequences that regulatory gaps and inconsistencies can have on our financial system, the economy and the American people. As Congress moves forward with potential cap-and-trade legislation, I believe it should ensure that there is a comprehensive regulatory framework over the expanded carbon markets – both the futures market and the cash market – without exception.
Proposed cap-and-trade initiatives would impose a ceiling on the total amount of greenhouse gasses that covered entities can emit and expand the market for pollution rights, which are known as “allowances.” An allowance is a limited authorization by the government to emit a quantity of carbon dioxide equivalent. The allowance could be traded, used by regulated parties to comply with emissions caps or potentially banked. Along with allowances, cap-and-trade programs for greenhouse gases utilize “offset credits” – credits given for activities that reduce, trap or sequester carbon.
Start trading in commodities from as low as $50. Join now
It is crucial to ensure that the carbon market functions smoothly, efficiently and transparently. Effective regulation of carbon allowance trading will require cooperation on the parts of several regulators. There are five regulatory components of carbon markets that I believe should be considered:
1. Standard setting and allocation;
2. Recordkeeping (maintaining a registry);
3. Overseeing trade execution system;
4. Overseeing clearing of trades; and
5. Protecting against fraud, manipulation and other abuses.
The first two components – the actual allocation of allowances and offset credits, and recordkeeping (other than recordkeeping of the trades) – fall within the expertise of other agencies. In other words, others are better equipped to regulate the “cap” part of “cap-and-trade.”
For example, the EPA currently issues allowances on sulfur dioxide and nitrogen oxide as mandated under the Acid Rain, NOx Budget Trading and Clean Air Market Programs. On a smaller scale, a conglomeration of ten states in the northeast and mid-Atlantic form the Regional Greenhouse Gas Initiative and issue allowances on greenhouse gas emissions. In each case, other entities issue allowances and maintain the registry. The constant, however, is that the CFTC regulates the emissions futures trading markets. In other words, the CFTC has a great deal of experience regulating the “trade” part of “cap-and-trade.”
Specifically, we have broad experience in the latter three components of carbon trading: regulating trade execution systems and clearing of trades and guarding against fraud, manipulation and other abuses. The Commission already oversees trading and clearing of futures and options contracts based on sulfur dioxide, nitrogen oxide and carbon dioxide allowances and offsets listed on the New York Mercantile Exchange and the Chicago Climate Futures Exchange. Additionally, just last month, under direction from Congress in last year’s Farm Bill, the Commission put out a proposed determination for public comment to classify the Carbon Financial Instrument contract traded on the Chicago Climate Exchange as a significant price discovery contract. This would give the CFTC full oversight authority over the contract, giving us additional experience regulating cash emissions contracts. The Commission has abundant experience in the regulation of centralized marketplaces, and should Congress seek to regulate cash markets for emission instruments, the Commission is well-suited to carry out that function.
In most respects, emissions contract markets operate no differently than the other commodity markets the CFTC regulates. While each contract – such as sulfur dioxide, soybeans, treasury bills or natural gas – presents its own unique challenges, the regulatory scheme is essentially the same. Carbon markets have similarities to several different markets that fall within our regulatory authority. For example, carbon allowances and offsets are similar to agriculture commodities in that there is a yearly “crop” and important programmatic regulations governing the nature of the product. At the same time, carbon contracts have similarities to financial products. For example, government-issued allowances and offset credits would be similar to Treasury-issued debt instruments. Futures contracts on Treasury debt are among the most actively traded CFTC-regulated products.
The emissions trading markets that the CFTC currently regulate are small relative to the expected growth of the carbon market as a result of cap-and-trade legislation. Still, the agency has the expertise to apply the same oversight to the much larger, national and mandatory market.
The Commission 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. The Commission’s compliance staff actively monitors operations to ensure that exchanges are enforcing their rules and that customers are protected from abusive practices. The oversight of clearing is an integral part of the CFTC’s regulatory structure.
The Commission has extensive experience and a well-established program to ensure derivatives clearing organizations and clearing firms have safeguards to ensure orderly clearing and settlement of transactions and safekeeping of customer funds. Our surveillance staff keeps a close eye 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. In the past year, the CFTC has expanded the scope of its existing energy advisory committee to create the Energy and Environmental Markets Committee, which significantly enhances the CFTC’s ability to anticipate and address the full panoply of regulatory issues pertaining to emissions trading markets.
The CFTC has wide-ranging transparency efforts designed to provide as much information to the American public as possible. Specifically, the Commission publishes weekly Commitments of Traders reports, which, starting last week, include disaggregated data to more accurately depict the makeup of the futures and options markets. The Commission also publishes quarterly data on index investment, a “This Month in Futures Markets” report and annual financial data for futures commissions merchants and futures industry registrants.
Should Congress pass cap-and-trade legislation, the CFTC would work with other regulators and market users to ensure that all transactions in both the carbon futures and cash markets are promptly reported and that a central registry is updated at east on a daily basis. With immediate registry of trades, it will be easier for regulators to identify manipulation in the markets.
The CFTC, however, would need additional resources for new staff and technology to effectively regulate the expanded carbon markets. The Commission is just this year getting back to the staffing levels that it had in the late 1990s. Since then, the markets grew five-fold and the number of contracts grew six-fold, but the agency’s staff was cut by more than 20 percent. To take on additional oversight responsibilities, we will continue to work with this Committee and the Appropriations Committees to secure additional resources.
As Congress moves forward and possibly enacts cap-and-trade legislation, I look forward to working with the US Senate Committee on Agriculture, Nutrition and Forestry to ensure that the new markets are comprehensively and effectively regulated. The CFTC is the exclusive regulator of futures markets. I believe that we have the expertise and experience necessary to help regulate the growth in carbon futures and cash markets that will occur if cap-and-trade becomes law. We must protect against the same hazards in the carbon markets that we currently guard against in other commodity futures markets: fraud, manipulation and other abuses. (Gary Gensler is Chairman, CFTC. Based on Testimony before US Senate Committee on Agriculture, Nutrition and Forestry)
isramart : FIRST U.S. CARBON MARKET REACHES 1 YEAR MILESTONE
Isramart news:
NEW YORK, NY) — The states participating in the nation’s first cap-and-trade system for greenhouse gases conducted their fifth regional auction of carbon dioxide (CO2) allowances Wednesday, September 9th. The auction marks one year since the debut of the Regional Greenhouse Gas Initiative (RGGI) auctions and brings the total amount of proceeds to more than $432.7 million since September of 2008.
Wednesday’s auction yielded a total of $66,278,239.35 from the sale of 28,408,945 allowances for the 2009 vintage and 2,172,540 allowances for the 2012 vintage.
Since last September over 100 bidders, including electric utilities, manufacturers, financial institutions, environmental groups, and individuals have participated in the RGGI auctions for CO2 allowances. Trading volumes on national, regulated exchanges now match volumes in other established carbon markets, such as the Kyoto Clean Development Mechanism. And every major power plant in the 10-state RGGI region now reports quarterly CO2 emissions to the public in an emissions and allowance tracking system.
“Once again the RGGI auction was a success, with demand running much higher than supply and compliance entities getting most of the allowances,” said Pete Grannis, Commissioner of the New York Department of Environmental Conservation and Chair of the Regional Greenhouse Gas Initiative, Inc. Board of Directors. “RGGI has established a price for carbon, demonstrated that auctions are an efficient and effective way to allocate CO2 allowances and enabled the states to return millions of dollars in benefits to consumers through investment in energy savings and clean energy.”
In a 2005 Memorandum of Understanding the states committed to use at least 25 percent of their allowance budgets for consumer benefit programs. In practice, the states have chosen to auction nearly all of the allowances and invest the proceeds in energy efficiency, renewable energy, technology development, and other programs that return the value of the allowances to consumers. Overall the states are investing the vast majority of proceeds in energy efficiency.
“The states participating in RGGI are investing auction proceeds in energy efficiency programs as the most effective way to manage energy demand while making the transition to a clean energy economy,” said Mark Mauriello, Commissioner of the New Jersey Department of Environmental Protection and Director of the Regional Greenhouse Gas Initiative, Inc. Board of Directors.
Energy efficiency also generates significant bill savings for consumers. A report by the New York State Energy Research and Development Authority forecasts that RGGI-funded energy efficiency measures will save New York’s consumers more than $1 billion over the lifetime of the installed measures. Similarly, data filed by Massachusetts utilities and made available by the Massachusetts Department of Energy Resources shows that a 2007 investment of $120 million in energy efficiency will yield an estimated $673 million in cumulative bill savings for participating customers.
“RGGI is a down-payment on our clean energy future and, through energy efficiency investments, it’s already paying dividends,” said Phil Giudice, Commissioner of the Massachusetts Department of Energy Resources and Treasurer of the Regional Greenhouse Gas Initiative, Inc. Board of Directors. “Since last September the states have allocated millions of dollars to programs that make the region’s homes, businesses, and communities more energy efficient, creating new jobs in the process. We look forward to working with the federal government to expand these strategic investments in the years ahead.”
To learn more about how each state is investing RGGI auction proceeds, please visit:
http://www.rggi.org/states/program_investments
Additional details about RGGI Auction 5 may be found in the Market Monitor Report for Auction 5, available at:
http://www.rggi.org/docs/Auction_5_News_Release_MM_Report.pdf
About the Regional Greenhouse Gas Initiative
The 10 Northeast and Mid-Atlantic states participating in RGGI (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, New York, Rhode Island and Vermont) have designed and implemented the first market-based, mandatory cap-and-trade program in the U.S. to reduce greenhouse gas emissions. Power sector CO2 emissions are capped at 188 million short tons per year through 2014. The cap will then be reduced by 2.5 percent in each of the four years 2015 through 2018, for a total reduction of 10 percent.
A CO2 allowance represents a limited authorization to emit one ton of CO2, as issued by a respective participating state. A regulated power plant must hold CO2 allowances equal to its emissions to demonstrate compliance at the end of each three-year control period. The first control period for fossil fuel-fired electric generators under each state’s CO2 Budget Trading Program took effect on January 1, 2009 and extends through December 31, 2011. Allowances issued by any participating state are usable across all state programs, so that the ten individual state CO2 Budget Trading Programs, in aggregate, form one regional compliance market for CO2 emissions. For more information turn to: www.rggi.org
NEW YORK, NY) — The states participating in the nation’s first cap-and-trade system for greenhouse gases conducted their fifth regional auction of carbon dioxide (CO2) allowances Wednesday, September 9th. The auction marks one year since the debut of the Regional Greenhouse Gas Initiative (RGGI) auctions and brings the total amount of proceeds to more than $432.7 million since September of 2008.
Wednesday’s auction yielded a total of $66,278,239.35 from the sale of 28,408,945 allowances for the 2009 vintage and 2,172,540 allowances for the 2012 vintage.
Since last September over 100 bidders, including electric utilities, manufacturers, financial institutions, environmental groups, and individuals have participated in the RGGI auctions for CO2 allowances. Trading volumes on national, regulated exchanges now match volumes in other established carbon markets, such as the Kyoto Clean Development Mechanism. And every major power plant in the 10-state RGGI region now reports quarterly CO2 emissions to the public in an emissions and allowance tracking system.
“Once again the RGGI auction was a success, with demand running much higher than supply and compliance entities getting most of the allowances,” said Pete Grannis, Commissioner of the New York Department of Environmental Conservation and Chair of the Regional Greenhouse Gas Initiative, Inc. Board of Directors. “RGGI has established a price for carbon, demonstrated that auctions are an efficient and effective way to allocate CO2 allowances and enabled the states to return millions of dollars in benefits to consumers through investment in energy savings and clean energy.”
In a 2005 Memorandum of Understanding the states committed to use at least 25 percent of their allowance budgets for consumer benefit programs. In practice, the states have chosen to auction nearly all of the allowances and invest the proceeds in energy efficiency, renewable energy, technology development, and other programs that return the value of the allowances to consumers. Overall the states are investing the vast majority of proceeds in energy efficiency.
“The states participating in RGGI are investing auction proceeds in energy efficiency programs as the most effective way to manage energy demand while making the transition to a clean energy economy,” said Mark Mauriello, Commissioner of the New Jersey Department of Environmental Protection and Director of the Regional Greenhouse Gas Initiative, Inc. Board of Directors.
Energy efficiency also generates significant bill savings for consumers. A report by the New York State Energy Research and Development Authority forecasts that RGGI-funded energy efficiency measures will save New York’s consumers more than $1 billion over the lifetime of the installed measures. Similarly, data filed by Massachusetts utilities and made available by the Massachusetts Department of Energy Resources shows that a 2007 investment of $120 million in energy efficiency will yield an estimated $673 million in cumulative bill savings for participating customers.
“RGGI is a down-payment on our clean energy future and, through energy efficiency investments, it’s already paying dividends,” said Phil Giudice, Commissioner of the Massachusetts Department of Energy Resources and Treasurer of the Regional Greenhouse Gas Initiative, Inc. Board of Directors. “Since last September the states have allocated millions of dollars to programs that make the region’s homes, businesses, and communities more energy efficient, creating new jobs in the process. We look forward to working with the federal government to expand these strategic investments in the years ahead.”
To learn more about how each state is investing RGGI auction proceeds, please visit:
http://www.rggi.org/states/program_investments
Additional details about RGGI Auction 5 may be found in the Market Monitor Report for Auction 5, available at:
http://www.rggi.org/docs/Auction_5_News_Release_MM_Report.pdf
About the Regional Greenhouse Gas Initiative
The 10 Northeast and Mid-Atlantic states participating in RGGI (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, New York, Rhode Island and Vermont) have designed and implemented the first market-based, mandatory cap-and-trade program in the U.S. to reduce greenhouse gas emissions. Power sector CO2 emissions are capped at 188 million short tons per year through 2014. The cap will then be reduced by 2.5 percent in each of the four years 2015 through 2018, for a total reduction of 10 percent.
A CO2 allowance represents a limited authorization to emit one ton of CO2, as issued by a respective participating state. A regulated power plant must hold CO2 allowances equal to its emissions to demonstrate compliance at the end of each three-year control period. The first control period for fossil fuel-fired electric generators under each state’s CO2 Budget Trading Program took effect on January 1, 2009 and extends through December 31, 2011. Allowances issued by any participating state are usable across all state programs, so that the ten individual state CO2 Budget Trading Programs, in aggregate, form one regional compliance market for CO2 emissions. For more information turn to: www.rggi.org
isramart : Australian Companies Opposed to Emissions Trading
Isramart news:
Don Argus, chairman of BHP Billiton -the biggest mining group in the world, is putting pressure on the Australian government to consider alternatives to the emissions trading plan that it’s planning to introduce in 2010. He said:
“Australia should consider and debate all the alternatives to a cap-and-trade system..I would not leave out the carbon tax initiatives. That’s mine, it’s not the company’s view.”
Australian Companies Opposed to Emissions Trading
Australia has committed to reduce its emissions by 60 per cent by the year 2050 and the cap-and-trade scheme is part of its broader effort to meet the target. The plan would bring under its purview a thousand industries who would need to purchase permits in order to emit carbon, thereby cutting down the amount of greenhouse gases vented into the atmosphere.
But since the carbon plan will mean higher costs, Australian businesses would like the government to explore other emission-reducing options. The Climate Change Minister, Penny Wong said:
“We’ve heard from many in the business community that they would prefer a different measure for assessing the cost impact..The government is willing to consider alternative approaches.”
Don Argus, chairman of BHP Billiton -the biggest mining group in the world, is putting pressure on the Australian government to consider alternatives to the emissions trading plan that it’s planning to introduce in 2010. He said:
“Australia should consider and debate all the alternatives to a cap-and-trade system..I would not leave out the carbon tax initiatives. That’s mine, it’s not the company’s view.”
Australian Companies Opposed to Emissions Trading
Australia has committed to reduce its emissions by 60 per cent by the year 2050 and the cap-and-trade scheme is part of its broader effort to meet the target. The plan would bring under its purview a thousand industries who would need to purchase permits in order to emit carbon, thereby cutting down the amount of greenhouse gases vented into the atmosphere.
But since the carbon plan will mean higher costs, Australian businesses would like the government to explore other emission-reducing options. The Climate Change Minister, Penny Wong said:
“We’ve heard from many in the business community that they would prefer a different measure for assessing the cost impact..The government is willing to consider alternative approaches.”
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