Feinstein, Snowe Introduce Bill to Establish Oversight over New Carbon Markets

A bill (S. 1399) introduced yesterday by Senators Dianne Feinstein (D-CA) and Olympia Snowe (R-ME) would “give the Commodity Futures Trading Commission full authority over markets that buy and sell pollution permits issued to companies as part of a climate change plan to cut greenhouse gas emissions,” Reuters reports.

It’s called the Carbon Market Oversight Act.

Under the proposed climate change legislation, “companies that use cleaner-burning fuel and take steps to cut their emissions could sell their permits to investors or other companies that spew more emissions.”

A press release issued on the bill states that it “is designed to prevent Enron-like fraud, manipulation and excessive speculation in the new federal, state and regional carbon markets that will be established by such a system.”

A summary of the bill’s provisions from the release:

• Carbon market trading would be transparent, cleared and electronically monitored.
• Requires all trading of carbon allowances and standardized allowance derivatives to occur through “registered carbon trading facilities” and to be cleared by CFTC regulated clearinghouses.
• Requires “registered carbon trading facilities” to:
  • Create a “central limit order book” so that every trade is recorded in real time with the Commission.
  • Publish trading data on at least a daily basis.
  • Maintain records.
• Manipulation, fraud, and excessive speculation would be prohibited, and violations would be severely punished.
• Requires “registered carbon trading facilities” to:
  • Monitor for manipulation, using electronic tools.
  • Establish and enforce rules to assure fair trading.
  • Enforce aggregate position limits.
  • Utilize emergency authority to force traders to reduce positions.
• Grants CFTC the authority to bring cases, open investigations, and use subpoena power to protect the marketplace.
• Establishes professional standards for all registered carbon market traders, dealers, and brokers.
  • Traders cannot be felons, may not have been stripped of a financial license, must submit to a background check, must complete at least 20 hours of pre-registration education on trading ethics, rules and laws, and must pass a test approved by CFTC.