Climate Change and Financial Markets: Regulating the Trade Side of Cap and Trade

Author(s): Jonas Monast

Published: January 2010

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An economy wide cap-and-trade system to limit the nation’s greenhouse gas (GHG) emissions would create a large new financial market. Unlike other markets that typically evolve over time, a national GHG cap and-trade system would be worth hundreds of billions of dollars at the outset. A market of this size requires attention to both the market risks and the political risks associated with the design and operation of a new financial market. Congress has the opportunity to guide the development of the market, incorporating best practices in market regulation and building on lessons learned from recent market failures.