California’s cap and trade program allows permitted greenhouse gas emitters to receive allowances from the Air Resources Board (ARB) through auction or sale in an allowances marketplace for specific amounts of emissions, and many critics argue the system is easily susceptible to fraud. The problem is that although the ARB has its own anti-fraud rule, legal oversight committees agree that without direct action from Congress the ARB has no authority to enforce penalties or even monitor secondary markets in carbon trading, making both the marketplace and the anti-fraud rule moot. For more on this continue reading the following article from JDSupra.
As part of California’s Cap and Trade Program, the Air Resources Board will issue will issue tradable permits (Greenhouse Gas (GHG) allowances) that authorize a permit holder to emit a specific quantity of GHGs. Entities will obtain these GHG allowances from the ARB through an auction or reserve sale or by purchase from a marketplace.
With any market, there are risks of manipulation, fraud and deception. The ARB has, in fact, adopted its own anti-fraud rule, 17 CCR § 95921(e). I don’t know whether the ARB has any enforcement resources to back up its anti-fraud rule, but the Commissioner of Corporations may have enforcement authority under the California Commodity Law of 1990, Corporations Code § 29500 et seq. to the extent that GHG allowances are determined to be subject to that act. The Commodity Law is itself an interesting law because it flatly prohibits the sale or purchase of any commodity under a commodity contract unless the purchaser, seller or commodity contract is excluded (Corporations Code §§ 29520 -29532).
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Given the sprawling scope of the Dodd-Frank Act, it is not surprising that Congress also addressed regulation of these markets. Section 750 of the act required a working group headed by the Commodity Futures Trading Commission, to conduct a study on the oversight of existing and prospective carbon markets to ensure an efficient, secure, and transparent carbon market, including oversight of spot markets and derivative markets. The working group submitted its report last year. Notably, the group found:
“Absent specific action by Congress, neither the CFTC nor any other federal agency may have any authority to routinely monitor trading in the secondary markets or to create rules or regulations that would apply to these markets.”
This article was republished with permission from JDSupra.
