Cap and Trade Duties Split

By Lisa Valentine

Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler has come out in favor of a multi-agency approach to regulating carbon-emissions trading markets. The CFTC will focus on the “trade” portion of cap and trade while he envisions other agencies, such as the Environmental Protection Agency (EPA), worrying about the “cap” aspects.

In a speech to the International Emissions Trading Association (IETA), Gensler outlined the six regulatory components of carbon markets:

1.    Standard setting and allocation,
2.    Emissions caps and offset requirements compliance, 
3.    Registry recordkeeping,
4.    Overseeing trade execution,
5.    Overseeing trade clearing,
6.    Protecting against abuses such as fraud.

Numbers 1-3 would fall under the auspices of another agency and the CFTC would be responsible for numbers 4-6. Gensler’s argument is that the CFTC has lots of experience in regulating trading of futures and options based on sulfur dioxide, nitrogen oxide, and carbon dioxide allowances and offsets on the New York Mercantile Exchange and the Chicago Climate Futures Exchange. Regulating carbon emissions would be similar, so it makes sense for the CFTC to stick to what it does best.

In separate testimony to the House Committee on Agriculture, Gensler expressed concern that regulatory financial reform proposals that give statutory authority to the Federal Reserve to oversee inter-bank payments systems would create a system of dual regulation (the Fed and the CFTC/SEC) that would allow for gaps in oversight.

The CFTC has always had the authority to regulate both the exchanges and the clearinghouses and for the most part, the system has worked well. Gensler’s point: that interjecting the Federal Reserve into the regulation of securities, futures and derivatives would be harmful is well taken.