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(July 25, 2012 – Washington, DC) - The Environmental Markets Association (EMA) is pleased to announce the successful result of their efforts and others in the industry to protect environmental commodities including emissions allowances, renewable energy credits, and carbon offsets from being regulated as "swaps" under Title VII of the Dodd-Frank Act.
EMA was active early in the process, and commented on the Commodity Futures Trading Commission's 2010 advance notice of proposed rulemaking, showing how environmental commodities were not swaps under the law. In its following notice of proposed rulemaking, the CFTC cited the EMA's comment letter, and suggested that environmental commodities could be made swaps by changing its regulatory definition of "physical" to capture them.
EMA and its members responded by writing comment letters to the CFTC, and also sought to alert as many other interested parties as possible to this threat by also writing articles in periodicals, speaking publicly at industry events, and supporting any others who requested assistance in preparing their own comment letters on the issue. EMA noted, among other things, that capturing environmental commodities as swaps because they were intangible would also capture patents and broadcast licenses.
Many others in the industry, as well as regulators, including the Environmental Protection Agency, also made persuasive arguments. All who participated in this essential endeavor to protect environmental markets succeeded. In its release of the final rule, the CFTC relented and stated: "The intangible nature of environmental, or other, commodities does not disqualify contracts based on such commodities from the forward exclusion from the swap definition." Note that swap transactions that use environmental commodities to determine prices will indeed be swap transactions under the law.
This effort was an excellent example of participation in the rulemaking process by EMA’s Market Oversight Committee contributing to a very successful outcome for the industry.
To view the specific efforts, visit http://emahq.org/news-resources/position-papers.