Allowance trading needs oversight, but don’t overdo it.
Catherine Krupka is a partner with Sutherland (formerly Sutherland Asbill & Brennan) in Washington, D.C. Email her at: catherine.krupka@sutherland.com. Susan Lafferty is a senior associate with Sutherland. Email her at susan.lafferty@sutherland.com
“Cap-and-trade won’t work.”
So says the Los Angeles Times in a March 10, 2008 opinion.1 Recalling the state’s experience when it deregulated the power markets and how that effort enabled “unscrupulous traders such as Enron to manipulate the market” the newspaper warns, “We could be looking at deregulation déjá vu. Carbon-trading markets are easy to manipulate and produce volatile energy prices, and the political influence of business and other lobbies can skew the system to produce unfair outcomes.”2
Although this opinion focuses on California’s attempt to manage greenhouse gas (GHG) emissions, federal lawmakers have expressed similar concerns as Congress considers omnibus climate change legislation. Senators Dianne Feinstein (D-Calif.) and Olympia Snowe (R-Maine) have proposed anti-manipulation laws for the emissions markets premised on laws applicable to manipulating securities prices. The Lieberman-Warner Climate Security Act of 2008 (S.3036), the leading federal cap-and-trade proposal, would establish a “Carbon Market Working Group” to ensure the integrity of the emissions allowance markets.
Is the U.S. on the right track when it comes to regulating the emissions markets? Not necessarily.