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CFTC Looks to Stay in Front of Carbon Market Juggernaut

In anticipation of a robust market for carbon emissions credits, the Commodity Futures Trading Commission (CFTC) is discussing how to keep track of what could become the largest commodity market in the world ($2 trillion within five years) if climate change legislation becomes law later this year.

Last week the CFTC called a meeting of the newly expanded Energy and Environmental Markets Advisory Committee (EEMAC), which is composed of experts from some of the world's leading energy, environment and exchange companies and organizations.

"Climate change legislation and the ability of government regulators to ensure that these markets operate free from fraud, abuse and manipulation will be keys to our success in alleviating the ill effects of global warming," said Bart Chilton, a CFTC commissioner and chairman of EEMAC. "Carbon trading will be the next big challenge."

U.S. Rep. Henry Waxman (D-CA), the chair of the U.S. House Energy and Commerce Committee, says he expects his committee to pass legislation in this regard by Memorial Day and that Congress could approve the new law before the end of the year (see NGI, April 6). President Obama has been a staunch advocate for climate change legislation and describes it as one of his key priorities (see NGI, April 27).

Responding to critics who say holding meetings prior to the creation of the market is foolish, Skip Horvath, president of the the Natural Gas Supply Association and EEMAC member, backed the CFTC's move at Wednesday's meeting. "If you're taking any sort of heat for having it backwards, blow it off," he urged Chilton, noting that the meeting was "a good idea."

Horvath warned that the CFTC had its work cut out for it, noting that the carbon market is "a market on steroids," with nothing else like it. He said his concern is whether or not the CFTC has enough resources to regulate a market as large as the carbon market is expected to be. "It is important because the downside is huge," Horvath said. "If this market fails, and all of the derivatives and other markets attached to it fail over time, it will make this last recession look like nothing. This is a huge market coming up and we only have a year or two, so I just want to think about the CFTC scaling appropriately."

In response, Chilton admitted that the commission does in fact "need more staff." He said the CFTC's ranks currently stand at "about 500 folks" and that he would like to see 200 people added. Manpower shortage or not, Chilton defended the commission's resolve. "We have an uphill fight, but I don't want anybody to take away from what anybody says here that we are not ready to deal with these markets; that we are not going to be on the ball; and that we are not going to have the resources to do the job that is required to avoid fraud, abuse and manipulation to protect consumers."

One year after the 25-member Energy Markets Advisory Committee was created by the CFTC to address energy commodity markets (see NGI, May 12, 2008), Chilton announced Wednesday that the original committee's scope and membership are being expanded to cover the environment to help prepare the government for carbon trading.

EEMAC's 11 new members are Elizabeth Moler, executive vice president of Exelon Corp.; Eileen Claussen, president of the Pew Center on Global Climate Change; Harvard Professor Robert Stavins; Seth Goldman, president of Honest Tea and board member of the Calvert Foundation; Jonathan Schrag, executive director of the Regional Greenhouse Gas Initiative Inc.; Gary Gero, president of the California Climate Action Registry; Heike Eckert, executive vice president of Eurex; Holly Koeppel, chief financial officer of American Electric Power; Jack D. Cogen, chairman of the International Emissions Trading Association; Tyson Slocum, energy program director for Public Citizen; and Dominick Chirichella, a partner at the Energy Management Institute.

"This is a distinguished group that will help the agency as we prepare for what could be the most important commodity market ever," Chilton said. "I know it is sort of rare for government to do a lot of work before a new law is even passed, but carbon markets are too important for us not to get right. We need to be ready on day one to put these markets on a solid path to success.

"These could be the biggest commodity markets in years and the agency needs to be prepared to protect these markets and consumers alike from fraud, abuse and manipulation."

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