This letter is our response to a congressional request concerning carbon trading in the United States and various design and implementation issues to be considered in discussions about a possible national carbon trading program. Industrial activities in the United States emit significant amounts of carbon dioxide and other greenhouse gases each year, substantially affecting the earth's climate, according to the National Academy of Sciences. In an effort to reduce these emissions, some have suggested capping emissions and allowing them to be traded in secondary markets just as other commodities are traded. We briefed congressional committee staff on the results of our work on July 23, 2010. Specifically, we provided information on (1) carbon-related products currently traded in the United States and the extent of trading; (2) risks and challenges posed by these products; (3) the extent to which and how these products are regulated; and (4) issues that market observers identified for policymaker consideration as part of creating a national cap-and-trade carbon market.
Recommendations for Executive Action
|Commodity Futures Trading Commission||The Chairman of the CFTC should ensure that the interagency working group created by the Dodd-Frank Act explores (1) how the design of any primary carbon market could affect the liquidity of any secondary market trading; (2) the structure of the secondary market, including the role OTC markets may play in carbon trading; and (3) the resources federal regulators may need to effectively oversee domestic carbon markets.|