On July 6, 2009, Senators Dianne Feinstein (D-CA) and Olympia Snowe (R-ME) introduced legislation that would grant the Commodity Futures Trading Commission (“CFTC”) full authority to regulate all carbon market trading.
The proposed bill, S. 1399, would remove language from the American Clean Energy and Security Act of 2009 (“H.R. 2454”), recently passed in the House of Representatives, that provides for dual oversight between FERC and the CFTC.  Under H.R. 2454, FERC would be responsible for regulating cash-based allowances and the CFTC would regulate carbon futures and derivative trading.  Under S.1399, the CFTC would be the sole regulator.
In addition to the regulatory oversight changes, some of the other major differences proposed in S. 1399 from H.R. 2454 include:

  • Requiring the CFTC to establish a clearinghouse capable of clearing carbon allowance transactions;
  • Requiring standardized bilateral swaps to be classified as regulated derivatives, and not exempt from regulation;
  • Establishing professional standards for carbon traders, brokers, and dealers;
  • Establishing a centralized, electronic database to track all trades and positions across multiple markets in real time; and
  • Establishing a new department within the CFTC that focuses on carbon markets in comparison to other commodity markets.

Sen. Feinstein commented on the changes saying, “[O]ur legislation establishes a clear and cohesive system for regulating this unique commodity trading marketplace.”  Sen. Snowe believes that granting oversight solely to the CFTC will “prevent the market failures that we have recently witnessed in our derivative markets.”
Senators Feinstein and Snowe hope to have the bill included in the Senate climate change bill that is currently being developed in the Environment and Public Works Committee.  A copy of S. 1399 can be found at: http://thomas.loc.gov/cgi-bin/query/z?c111:S.1399:.