The California Air Resources Board has given notice of the first greenhouse gas allowance auction to be held tomorrow (November 14). Last April, I wrote about the market in “Trading In California’s Greenhouse Gas Allowances – Fraud’s New Frontier?”
The auction will be effected on an internet-based platform and will have a single-round, sealed-bid format. The auction is scheduled to last only three hours. As I understand it, there are limits on the amount of allowances that may be acquired by a bidder so as to prevent attempts at cornering the market.
Creating, administering and enforcing a market is no easy task. According to this article by Lynn Doan and published by Bloomberg, California’s program has been plagued by “legal threats, political opposition and rule changes”. I question whether the California Air Resources Board has given any thought to the possible application of the California Commodity Law of 1990, Corporations Code Section 29500 et seq. or similar commodity laws enacted by other states.
I was also surprised to find this statement in a “fact sheet” on the Board’s website:
“This California carbon market is expected to generate derivatives markets falling under the jurisdiction of the Commodity Futures Trading Commission (CFTC).”
As I’ve previously pointed out, Section 750 of the Dodd-Frank Act required a working group headed by the CFTC 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’s conclusion set forth in this report appears to flatly contradict the Board’s assertion:
“[A]bsent 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.
Oh well, I suppose that at least one of these two statements is correct.
