A recent Senate Committee on Agriculture, Nutrition, and Forestry hearing focused on carbon markets and producer groups.

On September 9, 2009, the U.S. Senate Committee on Agriculture, Nutrition, and Forestry held a hearing to examine global warming legislation. The hearing focused on carbon markets and producer groups. Congress currently is working on legislation that would establish a cap-and-trade system to control greenhouse gas emissions.

Chairman Gary Gensler of the U.S. Commodity Futures Trading Commission (CFTC) testified that the CFTC is fully capable of regulating trading in the carbon markets. Chairman Gensler noted that five regulatory components should be considered: standard setting and allocation; recordkeeping; overseeing trade execution system; overseeing clearing of trades; and protecting against fraud, manipulation and other abuses.

Although other agencies, such as the Environmental Protection Agency, are better equipped to regulate allocation and recordkeeping, “the CFTC has a great deal of experience regulating the ‘trade’ part of ‘cap-and-trade,’” Gensler said. Gensler cited the CFTC’s experience in overseeing trading and clearing of futures contracts based on sulfur dioxide, nitrogen oxide and carbon dioxide allowances. In addition, Chairman Gensler noted that the CFTC recently asked for public comment regarding classifying the Carbon Financial Instrument (CFI) contract traded on the Chicago Climate Exchange as a significant price discovery contract (SPDC). Should the CFTC classify the CFI contract as an SPDC, the CFTC would gain full oversight authority over the contract. Chairman Gensler noted that this oversight would give the CFTC additional experience regulating cash emissions contracts, and claimed that, should Congress seek to regulate cash markets for emission instruments, the CFTC is well suited to carry out that function.

In support of allowing the CFTC to oversee carbon trading, Gensler said that the 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.” He also noted that the CFTC has transparency efforts to provide information to the U.S. public. Finally, if cap-and-trade legislation is passed, the CFTC along with other regulators would work together to create a central registry of carbon transactions in order to help identify market manipulation.