By Mark S. Nelson, J.D.
The U.S. Chamber of Commerce submitted a public comment letter to the CFTC regarding the agency’s Request for Information on Climate-Related Financial Risk that was issued in June 2022. The chamber’s comment letter emphasized that the CFTC does not have explicit statutory authority to pursue many of the policies suggested by the CFTC’s RFI and further urged the agency to tread lightly if it does move ahead with regulatory or policy initiatives on climate-related disclosures.
Statutory authorities, Administration policy. Overall, the chamber premised its public comment on the argument that the CFTC lacks specific statutory authority to address many climate-related issues. Although not mentioned by the chamber’s comment letter, many of its remarks on specific climate-related topics could imply the Supreme Court’s recent decision in West Virginia v. EPA, in which a majority of the justices narrowly interpreted the EPA’s statutory authorities. It remains unclear to what extent the Supreme Court or lower federal courts may expand that decision’s reach to apply to other regulators, although a future legal challenge to a final version of the SEC’s proposed climate risk disclosure regulation could become an early indicator.
With respect to CFTC authorities, the chamber singled out the prospect of stress testing as an example of an area where the CFTC would likely need new congressional authority. The chamber observed that there was not enough historical data to create viable stress tests and that the incorporation of longer time horizons could introduce subjective projections into any stress test scenarios.
The chamber also urged the CFTC to be cautious about imposing new minimum capital and liquidity requirements based, in part, on climate issues. Here, the chamber expressed concern that the CFTC was out of synch with more cautionary statements issued by Treasury Secretary Janet Yellen.
GHG emissions and carbon markets. GHG emissions and carbon markets also received attention from the chamber. Question 17 of the RFI asked whether, consistent with a recommendation by the Financial Stability Oversight Council, registered entities and registrants should be required to disclose information relating to GHG emissions? The chamber suggested that market participants may not have as strong an interest in this information, that disclosures could be costly for firms not directly regulated by the CFTC, and that firms may need to rely extensively on third-party data.
In the case of voluntary carbon markets, the chamber largely agreed with public remarks issued by CFTC Commissioner Summer Mersinger, whom the chamber said had raised a valid concern about the CFTC’s statutory authority to establish a regulatory framework outside of the derivatives setting (Mersinger’s statement is included as Appendix 4 to the RFI, which is linked above). Still, if the CFTC were to proceed with such framework, the chamber suggested the following guiding principles: (1) give more industrial sectors a seat at the table; (2) create an on-ramp and other approaches to disclosures; and (3) allow for flexibility in the pathways to net zero emissions.
Digital asset mining. The RFI contained just one paragraph of information on digital assets, although the focus here was on the lack of efficiency in some digital asset mining methods, especially proof of work, which requires large amounts of electricity to power server farms that solve complex math problems to unlock new digital assets like Bitcoin. In September 2022, Ethereum completed a years-long process of switching from proof of work to proof of stake. Proof of stake advocates claim the method can achieve significant energy use reductions as compared to proof of work.
The chamber said that digital asset mining has a place in the economy and questioned why, in the chamber’s view, the RFI appeared to assume that digital asset mining cannot coexist with a low-carbon economy. Citing a single paper published by the blockchain consulting firm Valuechain, the chamber suggested that proof of work is less inefficient that previously thought.
The Valuechain paper attempted to compare Bitcoin mining to “classical electronic cash and payments systems” and concluded that Bitcoin is more efficient in its energy use than are classical payment systems. Said the abstract to the Valuechain paper: “We demonstrate that Bitcoin consumes 56 times less energy than the classical system, and that even at the single transaction level, a PoW transaction proves to be 1 to 5 times more energy efficient. When Bitcoin Lightning layer is compared to Instant Payment scheme, Bitcoin gains exponentially in scalability and efficiency, proving to be up to a million times more energy efficient per transaction than Instant Payments.”