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Duke prof warns Congress that climate change bill must prevent speculation and fraud

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A global warming bill before Congress could be a breeding ground for speculators and con artists without strict government controls, Duke University environmental studies professor Tim Profeta is warning Congress this morning.
Profeta is testifying before the U.S. Senate Committee on Agriculture, Nutrition and Forestry on the global warming legislation that will create a cap-and-trade system for greenhouse gases. The two-hour hearing ends at noon.
Profeta is the founding director of Duke University's Nicholas Institute for Environmental Policy Solutions, which is active in climate change research and policy recommendations. Before founding the institute four years ago, Profeta worked in Washington as environmental counsel for Sen. Joseph Lieberman.
The cap-and-trade market will allow emitters of carbon dioxide to trade emissions allowances with other polluters. That way a company that exceeds its annual emissions limit will have to buy allowances from other companies. The market is designed to encourage businesses to reduce emissions so they can sell allowances.
The biggest part of the cap-and-trade system would be a derivatives market in futures, options and other complicated instruments.
Such a system could become rife with corruption unless information on emissions and trades is easy to access and monitor.
"Concerns about market abuses have nonetheless led some to conclude that now is not the time to create a new market," Profeta said in his printed testimony. "Let me posit that the opposite is true. ... Now is the best time to create a transparent, effective market that prevents excessive speculation and manipulation...."
Profeta said that risks include speculators similar to those who drove up oil and natural gas prices in 2008 to record heights.
Lack of regulatory oversight could lead to a catastrophe like the credit default swaps that helped bring down the economy last year. Credit default swaps are akin to an unregulated form of insurance that businesses buy to bet on financial risks taken by other companies. Regulators did not know the extent of Wall Street speculation in credit default swaps on mortgage-based investments.
Profeta said that lack of oversight could even lead to brazen fraud like the one perpetrated by Bernie Madoff, now behind bars for creating the largest Ponzi scheme in history.
"The lessons learned from these recent experiences are really quite clear, and if they are applied to the carbon market, should avoid repeats of the prior failures," Profeta's testimony said.
Profeta is one of about a dozen experts testifying. Each witness receives five minutes for oral comments and can submit written testimony.

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About the blogger

John Murawski has been a full-time newspaper reporter since 1991, with stints at Legal Times and The Chronicle of Philanthropy (both in Washington, DC), The Philadelphia Inquirer and The Palm Beach Post (in South Florida) before arriving at the N&O in December 2004. At the N&O he covers energy (nuclear, coal, renewable, efficiency), hydraulic fracturing (or "fracking"), public utilities and health care. His beat includes PSNC Energy, Piedmont Natural Gas, Duke Energy Progress, PowerSecure International, GlaxoSmithKline, Merck, Novo Nordisk, Pfizer, Biogen Idec and others. He has also contributed more than 30 book reviews on topics spanning botany, history, science and religion. You can reach him at 919-829-8932 or e-mail him.