Energy Law

Boucher-Dingell Bill Would Have FERC Run Cap-and-Trade Carbon Market

By Andrew McLain

If the "discussion draft" carbon cap-and-trade bill recently released by Congressmen John Dingell (D-MI) and Rick Boucher (D-VA) becomes law, then FERC would run the carbon market. Within FERC, the bill would create a new Office of Carbon Market Oversight possessing jurisdiction over brokers, dealers and certain others involved in carbon trading. The draft bill would amend the Federal Power Act to add provisions empowering FERC to regulate carbon markets. Noteworthy provisions of the bill include:

· Jurisdiction: FERC would obtain jurisdiction over both domestic and foreign transactions involving instruments ? defined as emission allowances, offset credits, and instruments whose values derive from the prices of allowances or credits ? not otherwise regulated by the Securities and Exchange Commission.  Brokers and dealers, as well as entities seeking to serve as Carbon Clearing Organizations (CCO), would need to register with FERC. The Environmental Protection Agency (EPA) would have the authority to manage certain carbon off-set programs, as well as establish industry-specific emission standards for sources that emit less than 25,000 tons of CO2 per year.

· Cap: The bill would cover approximately 88 percent of sources of U.S. greenhouse gas emissions. It would require these sources to be responsible for reducing "covered emissions" to six percent below 2005 levels by 2020, 40 percent below 2005 levels by 2040, and 80 percent below 2005 levels by 2050.

· Market Monitoring: FERC would monitor price and market manipulation of regulated instruments, and would be charged with promulgating regulations to prevent excessive speculation in regulated instrument trading. 

· Penalties: FERC would be authorized to assess civil penalties of $1 million per violation of the cap-and-trade law or up to three times the monetary gain obtained as a result of the violation.  FERC would also be the ultimate arbiter of decisions to suspend or expel certain participants in carbon trading activity. 

· Preemption: The bill would explicitly preempt state and local initiatives to regulate GHG, such as the Regional Greenhouse Gas Initiate (RGGI) that is implementing a mandatory carbon dioxide cap-and-trade program in the Northeast and Mid-Atlantic states.

One might fairly ask what expertise or special competence FERC brings to running a carbon market. Only some of the emission sources are energy utilities that FERC historically has regulated. Why not instead the EPA, with its expertise in administering the Clean Air Act? Alternatively, in recognition that carbon allowances may need to trade internationally, comparable to currency, why not the Department of the Treasury? Some suggest that the answer is politics. By selecting FERC, representatives Dingell and Boucher appear to take jurisdiction over the program away from the Senate Committee on the Environment and Public Works, chaired by Sen. Barbara Boxer (D-CA), and transfer it to the Senate Committee on Energy and Natural Resources, chaired by Sen. Jeff Bingaman. Sen. Bingaman is on record favoring less aggressive carbon controls less than Sen. Boxer, a position more in sync with the Boucher-Dingell discussion draft.

Congressmen Dingell and Boucher have stressed that their "discussion draft" is aptly named; it is a draft only, and it is meant to stimulate discussion.  Indeed, the bill contains blanks on some fundamental elements.  For example, it proposes?and asks for comment?on four different mechanisms for allocating emissions allowances, running the gamut from free allocations to auctions. 

Full post as published by Energy Legal Blog on October 21, 2008 (boomark / email).