U.S. panel OKs CFTC to regulate carbon derivatives

WASHINGTON (Reuters) - A U.S. House committee on Thursday agreed to give the U.S. regulator that oversees futures markets, such as the New York Mercantile, jurisdiction over the trading of new derivative contracts based on carbon emissions.

The proposal was included in legislation to cap and reduce U.S. greenhouse gas emissions that is expected to clear the House Energy and Commerce Committee. Utilities, oil refineries and other companies would have to buy and sell permits issued by the government to spew their emissions.

The proposal would also close loopholes in federal regulations that have allowed speculators to manipulate energy markets and inflate fuel prices, said Representative Bart Stupak, who sponsored the plan.

Democratic leaders want to bring the bill up for a full House vote by August. It would then be sent to the U.S. Senate, where there is much stronger opposition.

“Tight regulation of not only the existing energy markets but also the carbon derivatives market created by (the climate change bill) is a vital consumer protection,” Stupak said.

Under his plan, the Commodity Futures Trading Commission would have the authority to regulate carbon derivatives as an energy commodity.

“The carbon derivatives market should be based on a strong regulatory framework,” Stupak said. “The finite nature of carbon credits and absence of a physical commodity leave it particularly vulnerable to speculation.”

Stupak said that while energy costs are down significantly from a year ago, another dramatic increase in petroleum prices would further devastate the already weakened U.S. economy.

He blamed speculators for the 70 percent jump in oil prices since the beginning of the year, arguing the prices aren’t justified with petroleum supplies high and demand low.

“Gas prices, home heating oil, natural gas and now carbon derivative prices should be based on supply and demand,” he said. “Not whimsical speculation by price manipulators.”

Stupak’s carbon and energy market protections included in the climate change bill would:

* Give CFTC the authority to regulate all over-the-counter (OTC) trades that are currently not regulated.

* Regulate foreign boards of trades with energy transactions traded for delivery in the United States or on a computer terminal located in the United States.

* Close the swaps loophole, no longer allowing energy transactions to be excluded from the requirements of the Commodity Exchange Act.

* Ban naked credit default swaps.

* Set aggregate position limits for energy speculators across all markets.

* Clear all swaps through a designated clearing organization, taking them out of the “dark” markets without oversight.

* Allow the CFTC to collect fees and create an independent funding stream for oversight and enforcement of commodity markets.

* Establishes carbon as an included energy commodity subject to CFTC regulation.

Reporting by Tom Doggett; Editing by Gary Hill