The head of the Commodity Futures Trading Commission (CFTC) Wednesday.told a Senate panel that the agency has the skill and experience to regulate trading of carbon emissions, but it will need more funding from Congress to carry it out.
“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,” CFTC Chairman Gary Gensler said during a Senate Agriculture Committee hearing on climate change. The House passed its cap-and-trade bill (HR 2454), which seeks to cut heat-trapping greenhouse gas emissions by 83% by 2050, in late June (see Daily GPI, June 29). The Senate is expected to release its cap-and-trade bill later this month (see Daily GPI, Sept. 3).
The CFTC “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 fivefold and the number of contracts grew sixfold, but the agency’s staff was cut by more than 20%,” he said.
The CFTC would focus on the “trading” of emission allowances under the cap-and-trade system, while others, such as the Environmental Protection Agency, would oversee the cap part, Gensler said.
“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.” He acknowledged, however, that the emissions trading markets that the CFTC currently regulate are small compared to the carbon market that will be created if Congress passes cap-and-trade legislation.
“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,” Gensler said.
He said the CFTC would work with other regulators and market users to make sure 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. “With immediate registry of trades, it will be easier for regulators to identify manipulation in the markets,” Gensler noted.
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