[Congressional Record Volume 153, Number 186 (Thursday, December 6, 2007)]
[Senate]
[Pages S14851-S14853]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. FEINSTEIN:
  S. 2423. A bill to facilitate price transparency in markets for the 
sale of emission allowances, and for other purposes; to the Committee 
on Environment and Public Works.
  Mrs. FEINSTEIN. Mr. President, I rise today to introduce ``The 
Emission Allowance Market Transparency Act.''
  This legislation would establish necessary market oversight 
authorities to prevent Enron-type fraud and manipulation in the new 
greenhouse gas credit markets that are expected to emerge once Congress 
approves comprehensive climate change legislation.
  The goal is simple: To prevent the same type of fraud and 
manipulation that occurred during the Western Energy Crisis from 
happening if a new greenhouse market is established.
  The bill would establish transparency and anti-manipulation 
provisions modeled after energy markets protections that were 
established by the Energy Policy Act of 2005.
  Additionally, the legislation includes anti-fraud provisions and 
limits excessive speculation. The bill would establish strong financial 
penalties. Each offense would result in a fine of up to $1 million and 
10 years in jail.
  Simply put, this legislation is a necessary and critical part of any 
new carbon trading markets approved by Congress.
  Specifically, the legislation would require the Environmental 
Protection Agency to create a regulatory structure to oversee the new 
carbon credit markets.
  This system would be parallel to the system used by the Federal 
Energy Regulatory Committee FERC for the electricity and natural gas 
markets.
  The EPA would publish market price data in order to increase 
transparency; monitor trading for manipulation and fraud; and limit the 
size of speculative holdings to prevent any single trader from being 
able to set the price.
  The bill would also prohibit traders from: reporting false 
information; manipulating the market; and cheating or defrauding 
another market participant.
  Any trader who violated this Act would pay a maximum $1 million fine 
and spend 10 years in jail for each offense.
  We believe that this will strongly discourage traders from seeking to 
manipulate the market.
  This legislation is the key part of an effort to prevent newly 
emerging greenhouse gas markets from evolving without rules or 
regulation. These markets are coming, and we need to have the law in 
place to receive them.
  California has passed legislation and will soon establish a cap and 
trade system to control carbon dioxide emissions.
  Many members of the U.S. Senate support legislation, such as the 
Electric Utility Cap and Trade Act that I have introduced, to establish 
a Federal cap and trade system.
  Legislation sponsored by Senators Warner and Lieberman to establish a 
national, economy-wide greenhouse gas cap and trade system will be 
marked up in the Environment and Public Works Committee this week.
  If we don't set up a framework for oversight, the greenhouse gas 
market could turn into a wild west. The market--estimated to be worth 
as much as $300 billion annually--would invite the worst kind of 
manipulation, fraud, and abuse. The resulting volatility would affect 
consumer energy costs.
  This is not a hypothetical. In 2000 and 2001, newly created 
California energy markets lacked the basic protections in this bill. 
The electricity and related natural gas markets emerged

[[Page S14852]]

before the law caught up, and much of the manipulation that resulted, 
shockingly, was legal.
  Enron, for instance, ran a market where only they knew the prices. 
Without market transparency laws, this one-sided market was legal.
  Enron manipulated natural gas and electricity prices--but nothing in 
the Natural Gas Act or the Federal Power Act made this manipulation 
unlawful.
  Only years later, after millions of consumers had been harmed, after 
billions of dollars had been lost, and after the entire west had 
endured an energy crisis largely fabricated by traders, did Congress 
act.
  We were able to increase market transparency and prohibiting 
manipulation in natural gas and electricity markets were adopted.
  The provisions finally gave a sheriff the ability to impose oversight 
and record-keeping.
  The Federal Energy Regulatory Commission, has put its new authority 
to good use. It has performed aggressive natural gas market oversight.
  This summer it brought its first manipulation case, against 
Amaranth--a notorious hedge fund that allegedly manipulated natural gas 
prices month after month.
  The Emission Allowance Market Transparency Act would establish 
transparency and anti-manipulation provisions mirroring the provisions 
from the Energy Policy Act of 2005.
  Markets would be transparent, and manipulation would be illegal.
  In addition, this legislation adds anti-fraud provisions and limits 
excessive speculation. These additional market protections are 
longstanding principles of the Commodity Exchange Act.
  By mirroring proven market oversight mechanisms that protect market 
participants and consumers, this legislation would slip already broken-
in regulatory concepts onto a new market.
  This Nation needs to reduce greenhouse gas emissions, and many 
economists believe that a cap and trade system with a greenhouse gas 
market would be the most cost efficient way to guarantee emissions 
reductions.
  The economists also tell us that markets are most efficient when 
buyers and sellers have complete information, no market participant can 
cheat another, and prices result from supply and demand, not 
manipulation.
  That is why we need to prevent manipulation, fraud, and a lack of 
transparency.
  So this legislation would provide buyers and sellers with complete 
information; and prevent manipulation, fraud, and excessive 
speculation.
  Bottom line: this legislation is vital to protecting the market 
integrity of greenhouse gas emissions markets, and it should be 
included as part of any cap and trade legislation approved by Congress.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 2423

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Emission Allowance Market 
     Transparency Act of 2007''.

     SEC. 2. EMISSION ALLOWANCE MARKET TRANSPARENCY.

       (a) Purpose.--The purpose of this section is to facilitate 
     price transparency in markets for the sale of emission 
     allowances (including markets for real-time, forward, 
     futures, and options) to the maximum extent practicable, 
     taking into consideration--
       (1) the public interest;
       (2) the integrity of those markets;
       (3) fair competition; and
       (4) protection of consumers.
       (b) Definitions.--In this section:
       (1) Administrator.--The term ``Administrator'' means the 
     Administrator of the Environmental Protection Agency.
       (2) Emission allowance.--The term ``emission allowance'' 
     means any allowance, credit, or other permit issued pursuant 
     to any Federal law (including regulations) to any individual 
     or entity for use in offsetting the emissions of any 
     pollutant (including any greenhouse gas) by the individual or 
     entity.
       (c) Duties of Administrator.--
       (1) Regulations.--The Administrator shall promulgate such 
     regulations as the Administrator determines to be necessary 
     to achieve the purpose of this section, including regulations 
     that provide for the dissemination, on a timely basis, of 
     information regarding the availability and prices of emission 
     allowances with respect to--
       (A) the Administrator;
       (B) State regulatory authorities;
       (C) buyers and sellers of the emission allowances; and
       (D) the public.
       (2) Obtaining information.
       (A) In general.--Subject to subparagraph (B), the 
     Administrator may--
       (i) obtain the information described in paragraph (1) 
     directly from any emission allowance market participant; or
       (ii) enter into an agreement under which another entity 
     obtains and makes public that information.
       (B) Limitation.--Any activity carried out by the 
     Administrator or another entity to obtain information 
     pursuant to subparagraph (A) shall be subject to applicable 
     rules designed to prevent the disclosure of information the 
     disclosure of which would be detrimental to the operation of 
     an effective emission allowance market, as determined by the 
     Administrator.
       (3) Use of existing price publishers and service 
     providers.--In carrying out this subsection, the 
     Administrator shall--
       (A) take into consideration the degree of relevant price 
     transparency provided by price publishers and providers of 
     trade processing services in operation on the date of 
     enactment of this Act; and
       (B) use information and services provided by those 
     publishers and providers to the maximum extent practicable.
       (d) Actions by Individuals and Entities.--
       (1) Prohibitions.--It shall be unlawful for any individual 
     or entity--
       (A) to knowingly provide to the Administrator (or another 
     entity acting pursuant to an agreement described in 
     subsection (c)(2)(A)(ii)) any false information relating to 
     the price or quantity of emission allowances sold, purchased, 
     transferred, banked, or borrowed by the individual or entity, 
     with the intent to fraudulently affect the data being 
     compiled by the Administrator or other entity;
       (B) directly or indirectly, to use in connection with the 
     purchase or sale of an emission allowance any manipulative or 
     deceptive device or contrivance (within the meaning of 
     section 10(b) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78j(b))), in contravention of such rules and 
     regulations as the Administrator may prescribe to protect the 
     public interest or consumers; or
       (C) to cheat or defraud, or attempt to cheat or defraud, 
     another market participant, client, or customer.
       (2) Monitoring.--The Administrator shall monitor trading to 
     prevent false reporting, manipulation, and fraud under this 
     section.
       (3) Effect of subsection.--Nothing in this subsection 
     creates any private right of action.
       (e) Excessive Speculation.--
       (1) Finding.--Congress finds that excessive speculation 
     relating to emission allowances--
       (A) can cause sudden or unreasonable fluctuations or 
     unwarranted changes in the price of emission allowances; and
       (B) imposes an unnecessary burden on--
       (i) the development of a well-functioning emission 
     allowance market;
       (ii) the planning decisions of businesses and industry; and
       (iii) consumers.
       (2) Prevention of burdens.--
       (A) In general.--To prevent, decrease, or eliminate the 
     burdens associated with excessive speculation relating to 
     emission allowances, the Administrator, in accordance with 
     subparagraph (B) and after providing notice and an 
     opportunity for public comment, shall adopt position 
     limitations or position accountability for speculators as the 
     Administrator determines to be necessary on--
       (i) the quantity of trading transactions allowed to be 
     conducted, and the positions eligible to be held, by any 
     individual or entity in any emission allowance market; and
       (ii) any emission allowance auction conducted pursuant to 
     Federal law (including regulations).
       (B) Consultation.--In carrying out subparagraph (A), the 
     Administrator shall consult with--
       (i) the Commodity Futures Trading Commission;
       (ii) the Federal Trade Commission; and
       (iii) the Federal Energy Regulatory Commission.
       (C) Nonapplicability to bona fide hedging transactions or 
     positions.--
       (i) In general.--No regulation promulgated pursuant to this 
     paragraph shall apply to a transaction or position described 
     in subparagraph (A)(i) that is a bona fide hedging 
     transaction or position, as determined by the Administrator.
       (ii) Regulations for definitions.--The Administrator shall 
     promulgate such regulations as the Administrator determines 
     to be necessary to define the term ``bona fide hedging 
     transaction or position'' for purposes of clause (i), 
     including regulations that permit individuals or entities to 
     hedge any legitimate anticipated business need for any 
     subsequent period during which an appropriate futures 
     contract is open and available on an exchange or other 
     emission allowance market or auction.
       (f) Penalties.--An individual or entity that, as determined 
     by the Administrator, violates an applicable provision of 
     this section or a regulation promulgated pursuant to this 
     section shall be subject to a fine of $1,000,000, or 
     imprisonment for not more than 10 years, or both, for each 
     violation.
       (g) Jurisdiction of Commodity Futures Trading Commission.--
     Nothing in this section abrogates the jurisdiction of the 
     Commodity Futures Trading Commission with

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     respect to any contract, agreement, or transaction for future 
     delivery of an emission allowance (including a carbon dioxide 
     credit).
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