Geneva, 19 August 2009 

The following statement is from Henry Derwent, President and CEO of the International Emissions Trading Association (IETA), regarding proposals to limit participation by financial institutions in carbon emissions markets developed through the clean energy economy legislation currently pending in Congress. 

Recent comments from members of Congress on the role of financial institutions in carbon emissions markets have gone too far. There is near universal agreement that a successful carbon market is essential to advancing the United States’ clean energy economy and protecting the environment from climate change. But how do you finance the transition to a low-carbon economy without the financial sector?

Governments around the world are in awash in debt, so unless members of Congress are proposing a substantial tax increase, the private sector will need to come up with the money to protect the climate and spur on economic development and job creation. I do not see how America can accomplish the transformation to a clean energy economy without banks. Forcing banks away from carbon markets removes the very source of financing necessary to build new, more efficient and cleaner manufacturing centers and power plants. Their participation will be essential to drive innovative technologies which will protect the climate.

Excluding banks from the US carbon market will make the market less liquid, less efficient, more volatile, and more expensive, and will increase overall compliance costs due to the decreased market efficiency and lack of liquidity.

In a proper carbon market structure, banks, acting as financial intermediaries, will provide liquidity by standing in the market and providing daily offers to buy or sell allowances to covered industries. Banks will also provide tools to help covered industries manage their longer-term exposure to carbon price risk. These tools - , like forward sales and options to purchase, are not designed to fuel unscrupulous speculation, but rather to enable companies to prudently manage their exposure to market fluctuations and preserve capital for productive investments. Insisting that a newly created market like carbon do without these tools, in contrast to every other commodity in America, shows a complete misunderstanding of how markets can help reduce the cost of dealing with climate change. Taking banks out of the equation will make it more expensive to protect the environment and ensure that consumers end up paying more.

Ensuring that we meet our carbon objectives cost effectively must be the first priority of climate change legislation. Sound market oversight must be among the cornerstones of the policy framework. Within this context, America’s financial institutions and capital markets will not only strengthen the market’s ability to function properly, it will ensure a comprehensive response to one of the greatest challenges facing the world.

IETA has been the leading voice of the business community on the subject of carbon markets since 2000. IETA's 170 member companies (list attached) include some of America's and the world's leading corporations, including global leaders in oil, electricity, cement, aluminum, chemical, paper, and other industrial sectors; as well as leading firms in the data verification and certification, brokering and trading, legal, finance, and consulting industries.

Ends --

Henry Derwent – President & CEO

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David Hunter – Director, U.S. Policy

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