Carbon Market Study in Derivatives Bill

On Wednesday, April 21, 2010 the Senate Agriculture Committee voted 13 to 8 to approve Chairman Blanche Lincoln's derivatives reform legislation that will become part of the larger financial reform legislative package that the whole Senate will soon considered.

The Wall Street Transparency and Accountability Act (Act) requires most derivative contracts "to be traded on an public exchange and to be processed, or cleared, through a third party guarantee payment if one of the parties to a trade went out of business," reports Edward Wyatt and David M. Herszenhorn of the New York Times online.

What the Act also requires, as Reuters reports, is that a government interagency group conduct a study, which will be submitted to Congress, that will examine transparency issues in current and future carbon markets. The bill says the goal of the study is to "'ensure an efficient, secure, and transparent carbon market, including oversight of spot markets and derivative markets[.]"'

The study could be vital in helping Congress shape and regulate carbon markets. Currently ten northeastern states operate carbon markets on their power plants, while the Chicago Climate Exchange has a voluntary market.

However, it is likely that the Climate Change bill being introduced sometime next week by Senators Kerry, Graham, and Lieberman will "include a carbon market on power plants begining in 2012, which could be expanded to the manufacturers years later[,]" reports Reuters.

The government agencies and officials participating in the study are the heads of the Department of Agriculture, the Securities and Exchange Commission, the Environmental Protection Agency, the Federal Energy Regulatory Commission, the Federal Trade Commission, the Energy Information Administration, the Treasury Department, and the Commodity Futures Trading Commission.

We shall see if lawmakers make this study a talking point as the larger financial reform package continues to come together and be debated.

To read the Reuters article click here.
To read the New York Times article, click here.

Posted: 04/23/10