The Commodity Futures Trading Commission is launching a new committee to address the challenges posed by carbon markets.

The CFTC says that it is preparing for what could be the largest commodity market ever: carbon trading. In the near future, the U.S. Congress is expected to consider legislation centered around a cap-and-trade system that would reduce American greenhouse gas emissions 20% by 2020, and 83% by 2050. Hearings on the legislation are expected to begin when Congress returns to Washington next week.

“Regulation of these important environmental markets is something we need to get right,” said CFTC commissioner Bart Chilton, who announced the expansion of the commission’s existing energy committee to create the Energy and Environmental Markets Advisory Committee, to enhance the CFTC’s ability to anticipate and address regulatory issues pertaining to both energy and environmental trading markets.

“The mission, mandate and membership of the EEMAC is being expanded to ensure that we are ready for what could be a US$2 trillion market in the future,” Chilton said.

The CFTC has regulated other environmental markets, such the sulfur dioxide derivatives market that came into existence after the passage of acid rain legislation. It also expects to oversee the trading of derivative products associated with carbon dioxide allowances.

The EEMAC, which up until now was focused on energy markets, will include new members with expertise in climate change and environmental markets. The first meeting will be held on May 13 at the CFTC’s headquarters in Washington.

The European Union began a cap-and-trade system in 2005; it has, however, encountered problems such as an initial over-allocation of allowances that limited effectiveness. “I’m hopeful we in the U.S. can learn from the European experience to ensure that these markets take off in an orderly, efficient and effective fashion,” Chilton said. “This issue is too important to our economy and to our world, and we need to get this right from the get go.”

IE