January 18, 2011

Interagency Working Group Releases Carbon Oversight Study

Washington, DC – A Federal interagency working group led by the Commodity Futures Trading Commission (CFTC) today released a report on the oversight of existing and prospective carbon markets, fulfilling a requirement established in Section 750 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act requires the group to “conduct a study on the oversight of existing and prospective carbon markets to ensure efficient, secure, and transparent carbon markets, including oversight of spot markets and derivative markets.” The Act requires the group to submit its report to Congress with recommendations for the oversight of existing and prospective carbon markets.

The interagency group is composed of the following members: the Chairman of the Commodity Futures Trading Commission (CFTC), who serves as the group’s Chairman, the Secretary of Agriculture, the Secretary of the Treasury, the Chairman of the Securities and Exchange Commission, the Administrator of the Environmental Protection Agency, the Chairman of the Federal Energy Regulatory Commission, the Chairman of the Federal Trade Commission and the Administrator of the Energy Information Administration.

“This report fulfills Congress’s mandate to conduct a study on carbon market oversight,” CFTC Chairman Gary Gensler said. “I thank all of the members of the interagency working group and their staffs for providing thoughtful analysis on carbon markets and contributing to the recommendations included in this report.”

The Dodd-Frank Act directs the interagency group to consult with representatives of exchanges, clearinghouses, self-regulatory bodies, major carbon market participants, consumers and the general public in completing the study. To this end, the CFTC solicited public comments through both informal consultations and a formal comment process focusing on key questions raised by Section 750. Twenty-three written submissions were received, which are available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=911.

In its report, the interagency group recommended that the following objectives guide the oversight of existing and prospective carbon markets.

The Dodd-Frank Act includes significant reforms of the derivatives markets that will apply to carbon derivative products, whether traded on an exchange or over-the-counter. However, primary and secondary carbon allowance and offset markets will not be subject to the same comprehensive oversight as derivative markets. Various characteristics of carbon markets suggest the need to consider whether additional regulation is necessary for primary and secondary carbon allowance and offset markets.

Based on its study, the interagency group made the following recommendations in its report regarding the oversight of existing and prospective carbon markets:

Appropriate oversight for the primary and secondary allowance and offset markets will depend upon market-specific factors, including how primary and secondary markets are structured and the breadth of the market (e.g., national or regional). Appropriate oversight may not be the same for all markets. As such, more detailed work may be necessary to consider the appropriate oversight regime for existing and prospective primary and secondary carbon markets, particularly if or when Congress considers Federal market-based options for reducing greenhouse gas (GHG) emissions. In designing prospective markets, policymakers also should recognize the ability to achieve the above-described market oversight objectives through both traditional market oversight provisions and in part by the design of the underlying GHG policy.

Last Updated: January 18, 2011