CFTC Tinkers in Carbon Trading Oversight

August 20, 2009

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The U.S. Commodity Futures Trading Commission (CFTC) has proposed to oversee a greenhouse gas contract on the Chicago Climate Exchange, a voluntary trading market.

CFTC, which oversees trading of numerous commodities, may be angling to determine who should best administer the carbon trading market in advance of U.S. climate legislation that may institute a carbon emissions cap for major emitters.

CTFC is investigating to see if the Chicago Climate Exchange serves as “a significant price discovery function,” reports Bloomberg.

If so, the CTFC would have a precedent to provide oversight to the Chicago Climate Exchange, which currently administers trading for corporations, municipalities and other organizations engaged in voluntary carbon trading.

In last year’s farm bill, Congress gave the CTFC authority to regulate contracts used as a basis for cash market bids or “routinely disseminated in a widely distributed industry publication” and consulted by industry participants in pricing transactions, according to the Bloomberg article.

Legislators are undecided as to who should oversee U.S. carbon trading, should it come to pass.

The House climate bill would extend regulation of cash allowances in any future U.S. carbon market to the Federal Energy Regulatory Commission. Carbon derivatives and futures would fall under the CFTC.

A side bill would grant 100 percent of carbon market regulation to the CFTC, Reuters reports.

The CTFC is seeking public comment on its notice of intent to determine if the Chicago Climate Exchnage performs significant price discovery.

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