Fear of carbon markets is bipartisan.

A couple weeks ago, Senator Dorgan (D-ND) caused a small kerfuffle in the blogosphere by stating his opposition to a cap-and-trade system for carbon emissions. In an op-ed published in the Bismarck Tribune, Senator Dorgan argued that creating carbon markets is a bad idea because of the possibility of speculation and exploitative trading:

I know the Wall Street crowd can’t wait to sink their teeth into a new trillion-dollar trading market in which hedge funds and investment banks would trade and speculate on carbon credits and securities. In no time they’ll create derivatives, swaps and more in that new market. In fact, most of the investment banks have already created carbon trading departments. They are ready to go. I’m not.

Unless he proposes abolishing all markets out of fear of market speculation, Dorgan’s argument is, of course, unsupportable. Nobel economist and New York Times columnist Paul Krugman explained that the problem is inherent to markets, not carbon emissions allowances:

For example, the fact that wheat is traded means that there’s also a wheat futures market; and because wheat can be stored, futures prices affect spot prices.

So, should fear of speculation lead us to ban trading in wheat? Nobody would say that. Yes, sometimes speculators will get it wrong — but the advantages of having a wheat market vastly overshadow the possible harm that may sometimes come from speculation.

As Joe Romm makes plain, the Waxman-Markey bill already contains provisions against carbon speculation, including lodging regulatory oversight with both the Federal Energy Regulatory Commission (FERC) and the Commodities Future Trading Commission (CFTC) and explicitly criminalizing fraud and manipulation in carbon markets. Permit bidders are also required to publicly disclose information and are limited to purchasing no more than 5% of permits on the market.

Further, steps have already been taken in the Senate towards carbon market oversight. Senators Feinstein (D-CA) and Snowe (R-ME) have introduced a bill to regulate carbon markets under the CFTC: the Carbon Market Oversight Act of 2009 (S. 1399). There are more details on the CMOA at Global Climate Law Blog.

But the unsubstantiated fears of taking action don’t end there! On Thursday, the Senate Environment and Public Works Committee held hearings on the theme of “Climate Change and National Security,” where Senator Barrasso (R-WY) expressed his concern that carbon markets could become a source for “funding streams to international organized criminal elements.” (Behold his stirring oratory on YouTube.)

This is absurd and disingenuous in the same way that Senator Dorgan’s concern is absurd and disingenuous: the problem is one that is inherent to any markets – or money in general – and has nothing to do with carbon markets in particular. I am willing to bet that opposing cap-and-trade carbon markets is not going to have any substantial effect on the financial solvency of international criminal organizations. Both of these fears are valid only in that they are plausible – they are tiny specks in the realm of possibility — but more importantly, they are problems that are totally addressable by appropriate means: regulation and policing. That’s how society and government addresses these problems of manipulation and corruption in every other market context, and there’s no reason to believe it would be different when it comes to carbon emissions allowances. It strikes me as disingenuous and misleading to suggest that these are evils that are peculiar to a carbon cap-and-trade system.

Senator Barrasso was specifically referring to a Reuters report on statements by an Interpol environmental crimes specialist. However, the Reuters article and the Interpol official’s concern was about REDD – a UN-backed international scheme that monetizes the prevention of deforestation. What role does it play in a U.S. climate change bill? I’m not sure, and Senator Barrasso didn’t really say, except for allusions to that fearsome specter – the carbon market! But, again, whatever sort of carbon market that might spring up if/after this legislation passes is not going to be some kind of shadowy exchange of sketchy characters. It will be a fully regulated market, and we have already seen plenty of proposals about how to regulate it to ensure transparency and avoid inappropriate market manipulation.