Report Warns That Carbon Derivatives Markets Pose Threats Congress Has Not Addressed

The carbon trading system that would be created by the energy bill
that passed the House of Representatives in June would be complex,
volatile and prone to gaming. That's the conclusion of a new report
released today by Friends of the Earth.

The report, "Simpler, Smaller and More Stable: Designing carbon
markets for environmental and financial integrity," also finds that
emerging proposals to regulate derivatives are necessary but not
sufficient to ensure the integrity of carbon markets. Instead, the
report concludes, if policymakers wish to use a cap-and-trade system as
a tool to reduce global warming pollution, they must design the system
to be much simpler, smaller, and more stable than current proposals.

"The byzantine carbon trading system that came from the House, and
may now be included in the Senate bill, looks nothing like your
textbook emissions trading scheme. It's complex and has unique
characteristics that demand attention," said Michelle Chan of Friends
of the Earth, the report's author. "Fortunately, such a system has not
yet been put in place. There's still time to do this right. Simpler is
better; the more that bells and whistles are included, the more chances
there are to game the system."

The report suggests carbon trading could be made more
straightforward by only allowing the trading of emissions permits (and
excluding carbon offset credits) and by discouraging Wall Street
speculators from dominating carbon markets.

The full report can be found at: https://www.foe.org/sites/default/files/CarbonMarketsReport.pdf