Post by
no1coalking on Mar 13, 2008 7:37pm
Multi Billion Dollar Carbon Market:
US EPA to take on key role in multi-billion dollar carbon market
As US policymakers, financiers and industry brace themselves for a US domestic greenhouse gas emissions trading system, the Environmental Protection Agency (EPA) stands poised to oversee the resulting multi-billion dollar carbon market.
A number of provisions in pending US climate change legislation would create a significant role for the EPA in ensuring that the nascent US carbon market – estimated to be worth $150 billion in its first year, according to Point Carbon - operate fairly and without manipulation.
"You will need an implementing agency for any national greenhouse gas reductions framework. The EPA is the most logical agency to do that, particularly given its work on prior federal precedents like the Clean Air Act," said Lance Pierce, climate programme director of the Union of Concerned Scientists.
The federal Clean Air Act gave the EPA the role of overseeing the US’ allowance-trading programme for acid rain, which is now in its second trading phase. But the agency could have authority over more than allowance allocation and rulemaking if some of the current congressional bills on carbon caps get passed.
Democratic Senator Dianne Feinstein and Republican Senator Olympia Snowe in December introduced a bill – the Emission Allowance Market Transparency Act – that would require the EPA to create a regulatory structure to oversee future carbon credit markets.
That structure would resemble the Federal Energy Regulatory Committee (Ferc), which regulates US electricity and natural gas markets.
“There are other legitimate agencies such as Ferc and the CFTC (Commodities Trading Futures Commission) that are potential agencies that could oversee this – but after a lot of discussion and debate over this, we think that the EPA is the best suited for the oversight,” a spokesman for Snowe told Point Carbon in an email.
The bill, designed to ensure that the future carbon market will not fall prey to manipulation experienced in California’s electricity market earlier this decade, would direct the EPA to publish market price data, monitor carbon trading for manipulation and fraud, and enforce position limits to “prevent excessive speculation.”
Snowe said in December that the bill creating a cap-and-trade programme to be debated in the US Senate in June “will create a new valuable commodity by setting up carbon emission allowances that could generate more than $7 trillion over the life of the 38-year programme and could unfortunately create opportunities for abuse and manipulation.”
Snowe and Feinstein are discussing how to move their proposal forward as an amendment to the comprehensive cap-and-trade programme being considered by the senate.
Efficiency board
That bill, authored by Independent Senator Joe Lieberman and Republican John Warner, contains a provision creating a kind-of Federal Reserve for the carbon market – the “Carbon Market Efficiency Board” – which would have the power to intervene in cases of market failure or unreasonable market volatility.
The board, whose members would be appointed by the US president, would be able to control the supply of allowances in the market and readjust the pace of emission targets if its members deem the cap too high or low.
But according to Tim Profeta of Duke University’s Nicholas Institute for Environmental Policy Solutions, who developed the plan with lawmakers, the board does not have the authority to regulate or enforce the market. Its role would largely be to create transparency and help control market behaviour.
“What you will find is that as the anti-manipulation language develops – whether with EPA or another agency – there will be a lot of communication between that agency and the efficiency board,” Profeta told Point Carbon.
Profeta added that during the drafting of the Lieberman-Warner bill, there was resistance to the idea of giving the board the authority to regulate and enforce anti-manipulation measures because it would be a potential conflict of interest.
The EPA will eventually be the manager of the carbon market system, Profeta said, with the authority to oversee the allocation of allowances and administer true-ups, but its exact role in terms of enforcement and regulation is still “an open question.”
Natural role
Some in the market feel that the EPA would play the natural role of regulator of a future carbon market because of its previous experience in overseeing other environmental markets.
“The regulation of the market should be handled by the EPA – they’ve done it in the past,” said Andy Kruger, director of greenhouse gas programmes at New York-based broker Evolution Markets.
Kruger said that the agency already has staff focussing on the implementation of a carbon market within the next few years, and added that some of the same people involved in the development of earlier cap-and-trade schemes – such as the acid rain programme – will be involved in similar plans for carbon.
“What’s left for the folks in EPA is to establish the programme, set parameters and what the baseline will be and what allowances will be issued,” he said, adding that the agency is already familiar with what kind of emission-reductions are real and what aren’t.
While the EPA currently tracks the emission reductions of a number of US companies enrolled in a voluntary carbon emissions reduction programme, the scale of data that it will need to monitor will dramatically increase once a mandatory programme is in place.
“The transactions and reductions expected under a mandatory cap-and-trade programme will be 50 to 100 times the amount than the EPA currently tracks now and are considerably more complex, said Reiner Musier, vice president of APX, an infrastructure provider for energy and environmental markets.
The agency will soon have to prepare for monitoring a much more complex system which would involve both allowance-trading and carbon offset programmes, he said.
Washington DC