Chicago, IL – A US financial regulator says that rapidly expanding trading of greenhouse gas emissions contracts are already making progress in the effort to combat global warming. Commissioner Bart Chilton of the Commodity Futures Trading Commission (CFTC) told an audience here that Green CAT Markets (cap and trade) that are currently trading on a voluntary basis in Chicago and New York could become the largest of all commodity markets.
Chilton said the passage of federal legislation this year would have a positive and dramatic impact on markets, the economy and on the environment.
“Globally, these environmental markets have already grown on average 329 percent per year since 2002”, Chilton said.
With the passage of legislation, such as H.R. 2454 introduced by Representatives Henry Waxman (D-CA) and Edward Markey (D-MA), Chilton estimates "Green CAT Markets could become $2 trillion endeavors in five years."
President Barack Obama has been a leading influence on getting the legislation moving on Capitol Hill. He met with Waxman, Markey and other House members in April and urged that the bill be put on a fast track. The measure was approved by the House Energy and Commerce Committee (which Waxman chairs) before Memorial Day and is scheduled to be considered by the full US House of Representatives before the August District Work Period. Obama has said that he wants legislation to become law by the end of the year.
Currently the environmental trading of carbon emissions is done on a voluntary basis, but should the Waxman-Markey bill, or similar legislation become law, carbon-emitting businesses will be required to limit their output in order to meet mandated emissions reductions. If they can't reduce below those levels, or caps, emitters will need to purchase allowances from others who have allowances to sell. The overall goal of the legislation would be to reduce US carbon emissions which cause global warming by 17 percent (using 2005 as the constant base year) by 2020, and by 83 percent by 2050. In order to achieve those levels, companies would trade allowances to ensure compliance. That trading would be done on regulated futures exchanges similar to futures trading for other commodities like oil, gasoline, agricultural commodities and metals.
As part of the Green CAT Markets legislation, Chilton says financial regulatory reform provisions are critically needed. "We don't want to see the largest commodity markets in the world--these Green CAT Markets--become a private jungle gym for speculators and fraudsters," he explained, "We need additional regulatory tools to protect consumers."
Chilton said that, "Last year we saw oil and gas prices go through the roof. As a regulator, I'm hard-pressed to say consumers were protected like they should have been. And here we go again this year with no changes in the law."
Crude oil prices have already increased 60 percent this year. West Texas Intermediate (WTI) the oil benchmark contract started off the year at $44.60. Yesterday was a high for the year as it broke a new threshold closing at 71.33. Similarly, gasoline has increased approximately 55 percent since the beginning of the year, selling at an average of over $2.60 across the nation. At the same time that prices are climbing steadily, according to Chilton, oil supplies are at a ten-year high and demand is at a ten-year low. "If those figures didn't concern me as a regulator, I wouldn't be doing my job," he said.
“We need a two-pronged approach here," Chilton suggested, "Green CAT Markets legislation to help our economy and our environment, and we need regulatory reform to ensure that existing and new markets are operating properly to protect consumers from rampant Ponzimonium, fraud, abuse and market manipulation."
R. David Gary
Last Updated: April 2, 2010