Christopher Berendt, of counsel in the Washington, D.C. office, was quoted in an Environmental Finance article detailing a recent ruling from the Commodity Futures Trading Commission (CFTC) preventing U.S. environmental commodities from being classified as swaps under the Dodd-Frank Act.
In the article, Chris explained that classifying renewable energy certificates (RECs) or carbon credits as swaps would have meant that project developers would have had to post collateral equal to “five to 15%, maybe more” of a forward contract’s value. Such projects would have been greatly affected by these requirements, as they generally rely on sales over a span of years.
“Had it gone in the other direction, and had the CFTC mis-characterised environmental commodities as swaps,” Chris explained, “there would have been a significant increase in transaction costs with a substantial negative impact on the financing of renewable energy and carbon projects.”
Chris co-lead the drafting of the Environmental Market Association's comments which set the arguments for the comments from the rest of the renewable energy and environmental markets community.
“From the environmental markets standpoint, this is a clear win,” Chris said.