Democrats Examine Oil Market Speculation
At a June 23 hearing on oil market speculation, Chairman of the House Energy and Commerce Committee, John Dingell, (D-MI), said that lawmakers should consider a "full range" of options to curb oil market speculation. Dingell said that Congress should examine proposals to increase margin requirements to 50 percent from their current 5-7 percent levels, set position limits across all futures exchanges, block commodities investment by pension funds and bar investment banks from owning energy assets.
Rep. Bart Stupak (D-MI), Chairman of the Oversight and Investigations Subcommittee, which convened the hearing, recently introduced H.R. 6330, the "Prevent Unfair Manipulation of Prices Act of 2008," that would broaden the authority of the Commodity Futures Trading Commission (CFTC) to regulate energy transactions, and strengthen the enforcement authorities of the Federal Energy Regulatory Commission (FERC). Before the July 4 recess, House Democrats plan to vote on Stupak's bill. Sen. Maria Cantwell (D-WA) introduced a Senate version of the Stupak bill on June 23.
Sensing the pressure from lawmakers, the CFTC has announced it will expand its oversight of futures markets, and impose position limits on U.S. oil contracts traded in the ICE Futures Europe exchange, which is under British authority.
Many Democrats, however, and some GOP lawmakers say that the CFTC is not doing enough to curb speculative investing by pension funds, big banks and other investors that is inflating oil prices far beyond what the market price should be.
Morgan Meguire is watching this debate carefully, as its resolution could be a precedent for any carbon allowance markets created under a cap-and-trade bill and, perhaps, for Financial Transmission Credit markets, where speculators play a significant role.
New House Climate Change Bill Includes Tax Provisions
On June 19, House Ways and Means Committee member Lloyd Doggett (D-TX), and 15 other members of the Committee, introduced new climate legislation, H.R. 6316, The Climate Market Auction, Trust, and Trade Emissions Reduction System, or the "Climate MATTERS Act." The bill now has 78 cosponsors, and was referred primarily to the Ways and Means Committee, with additional referrals to eight other Committees. The primary referral strongly suggests a desire by members for an elevated role for the tax-writing committee in producing a climate bill next Congress.
A hearing on H.R. 6316 will be held in the House Ways and Means Committee in July. The following members from New England joined as original cosponsors of the bill, Reps. Joe Courtney (D-CT), Rosa DeLauro (D-CT), William Delahunt (D-MA), John Larson (D-CT), James McGovern (D-MA), Niki Tsongas (D-MA) and John Olver (D-MA).
The bill would establish an economy-wide, market-based cap-and-trade mechanism to reduce greenhouse gas emissions (GHG) by 80% below 1990 levels by the year 2050. It would create a carbon market in which allowances to emit greenhouse gases will be auctioned, with part of the proceeds going towards "deficit reduction" and "citizen protection." Unlike the Lieberman-Warner bill in the Senate, responsibility for the auction and management of the funds it generates would be vested in the Treasury Department. Initially, 85% of the allowances would be auctioned, transitioning to a 100% auction by 2020. The remaining 15% would be distributed to affected industries to assist them in making the transition to the new, low-carbon economy. In the period from 2012-2018, the auction is estimated to raise roughly $1.1 trillion. "Citizen Protection" would include assistance to low-and moderate-income consumers, natural resource adaptation plans, international adaptation plans, transition assistance to dislocated workers and their communities, energy efficiency, transportation alternative and green energy research, among other things.
The bill would also direct the President to negotiate with other nations to develop cap-and-trade systems that are comparable to that of the United States. It would also require importers of certain-carbon intensive goods from countries without comparable emissions limits to purchase allowances to cover emissions resulting from the production of those goods.
The bill would also set up a Carbon Market Efficiency Board to ensure the carbon market is functioning properly and will not cause harm to the economy. Title V of the bill directs the Environmental Protection Agency (EPA) to develop a GHG registry that covers all emissions of GHG in the United States.
Boucher Carbon Capture and Storage Bill Summary
On June 12, Rep. Rick Boucher (D-VA), Chairman of the Subcommittee on Energy and Air Quality, introduced legislation to accelerate the availability of carbon capture and storage (CCS) technology, entitled the Carbon Capture and Storage Early Deployment Act. The bill would:
- Allow a "qualified industry organization" that represents distribution utilities at least 20% of which deliver fossil fuel-based electricity to conduct a referendum to decide if they want to create a Carbon Storage Research Corp (CSRC);
- Upon approval of two-thirds of its members - voting weighted per each member's relative delivery of such electricity, so utilities with more fossil-fueled generation have a greater vote - the CSRC would be approved and authorized to collect assessments for a ten year period;
- Assessments would be calibrated to raise approximately $1 billion per year.
- The CSRC would operate as an affiliate of the Electric Power Research Initiative (EPRI) and be managed by a Board of no more than 12 directors, including at least one investor-owned utility (IOU), one municipal, one cooperative, and one from a fossil fuel producer. Board members would receive no compensation;
- The CSRC would use the funds to issue grants and contracts to private, academic, and public entities to accelerate commercial demonstration or availability of CO2 capture and storage technologies and methods, among other things.
Investor Enthusiasm Waning for Carbon Markets
Carbon credit trading has increased dramatically in the last year, including in the United States, where firms trade European allowances under the Kyoto Protocol's Clean Development Mechanism (CDM). However, due to a lack of consensus in international climate negotiations and little progress towards a new U.S. greenhouse gas emissions agreement, investors are becoming less interested in carbon credit trading, according to a spokesman for private equity firm MissionPoint Capital.
Investors say they are concerned about the current direction of United Nations climate talks. They argue that after 2012, there is a lot of uncertainty as to what will happen with these markets. Some on Wall Street fear that the U.S. may refuse to sign onto a binding international carbon reduction commitment unless China, India and other major developing world emitters do the same. Some investors are therefore worried that there may not be a global carbon market trading system and that they should be more cautious when investing in these types of emissions credits in the future. Many are beginning to take the approach to invest cautiously and avoid "offset projects in sectors with a high likelihood of regulation."