With little fanfare, the CFTC has issued a notice seeking public input on the interagency study required by section 750 of the Dodd-Frank Act with respect to oversight of existing and prospective carbon markets. The study is intended to ensure “an efficient, secure, and transparent carbon market, including oversight of spot markets and derivative markets.” Though not having the near-term regulatory impact of the numerous recent and imminent proposed rules issued by the CFTC to implement Dodd-Frank, the study has the potential to inform regulation of what could be a fundamental market in the future economy (despite a noticeable loss of momentum, at least at the federal level, towards a regulatory regime over carbon emissions)
The interagency working group, headed by the Chairman of the CFTC, also includes the Secretary of Agriculture, Secretary of the Treasury, Chairman of the SEC, Administrator of the EPA, Chairman of FERC, Chairman of the FTC, and Administrator of the Energy Information Administration. The CFTC seeks public comment on the following topics and questions:
- Section 750 of the Dodd-Frank indicates that the goals of regulatory oversight should be to ensure that carbon markets are efficient, secure and transparent. What other regulatory objectives, if any, should guide the oversight of such markets?
- What are the basic economic features that might be incorporated in a carbon market that would have an effect on market oversight provisions—e.g., the basic characteristics of allowances, frequency of allocations and compliance obligations, banking of allowances, borrowing of allowances, cost containment mechanisms, etc.?
- Do the regulatory objectives differ with respect to the oversight of spot market trading of carbon allowances compared to the oversight of derivatives market trading in these instruments? If so, explain further.
- Are additional statutory provisions necessary to achieve the desired regulatory objectives for carbon markets beyond those provided in the Commodity Exchange Act, as amended by the Dodd-Frank Act, or other federal acts that may be applicable to the trading of carbon allowances?
- What regulatory methods or tools would be appropriate to achieve the desired regulatory objectives?
- What types of data or information should be required of market participants in order to allow adequate oversight of a carbon market? Should reporting requirements differ for separate types of market participants?
- To what extent is it desirable or not desirable to have a unified regulatory oversight program that would oversee activity in both the secondary carbon market and in the derivatives markets?
- To what extent, if any, and how should a U.S. regulatory program interact with the regulatory programs of carbon markets in foreign jurisdictions?
- What has been the experience of state regulators in overseeing trading in the regional carbon markets and how would that instruct the design of a federal oversight program?
- Based on trading experiences in SO2 and NOX emission allowances what regulatory oversight would market participants and market operators, respectively, recommend?
- Who are the primary participants in the current primary environmental markets? Who are the primary participants in the current secondary allowance and derivatives environmental markets?
Comments must be received on or before December 17, 2010, and the interagency group must submit its study to Congress no later than January 17, 2010.