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Regulate Carbon Like Other Markets, Traders Say (Update1)

Publication Date: 
September 28, 2009
Bloomberg News
Simon Lomax

Professor Michael Wara is quoted in this Bloomberg article, which discusses possible legislation and regulation of the carbon market:

The rules for buying and selling pollution credits under a proposed U.S. “cap-and- trade” program shouldn’t be tougher than those being debated in Congress for other markets, the International Emissions Trading Association said today.

Geneva-based IETA, whose members include Chevron Corp.,American Electric Power Co. and Goldman Sachs Group Inc., said in a report that “future financial services reform legislation should supersede the carbon market oversight provisions” of any cap-and-trade legislation that passes Congress.


The rapid growth in carbon markets that may follow the passage of U.S. cap-and-trade legislation may justify tougher rules for derivatives trading in emissions than in other commodities, Michael Wara, a professor at Stanford Law School, said in a phone interview.

Extra requirements for carbon, such as the execution of all trades on regulated exchanges, should be relaxed once the CFTC determines the new market is “mature enough to ease off,” Wara said.

The underlying goods in a carbon market are emission allowances that don’t yet exist because Congress hasn’t passed a cap-and-trade bill, he said. For carbon, there will be a “spin- up issue that most commodities don’t face” and regulators should be cautious until the cap-and-trade market is properly understood.

Early trading in a U.S. carbon market is likely to suffer from “so much uncertainty” and there is “the potential to exploit all of that uncertainty,” Wara said.