Eliminating the Possibility of Market Manipulation

The American Power Act was introduced today by Senators John F. Kerry and Joseph I. Lieberman.  The bill would create a cap-and-trade program designed to reduce greenhouse gas emissions to 17%  below 2005 levels by 2020 and 83% by 2050.  The program will eliminate state-level cap-and-trade programs (such as RGGI and the Western Climate Initiative) and compensate states for those losses. 

The program targets only large pollution sources, covering only those that annually produce more than 25,000 tons of carbon pollution.  This translates to about 7500 such sources.   According to the bill’s proponents, the program was designed to “block[] market manipulation.” Thus, the program is designed so that the auction and primary cash markets are limited to “entities with a compliance obligation and a limited number of ‘market makers.’”  The secondary market is open to all, but “will only exist on a cash-cleared basis. It will be highly regulated, exchange traded and transparent.”  

This structure, they claim, “eliminates the possibility of manipulation, which will mean a secure, well-functioning market system.”  

As I have noted elsewhere, I am, at least initially, skeptical of the overall value of the bill.   That skepticism is even more acute with regard to a functioning market devoid of even the possibility of manipulation.    

--Josh Fershee