CFTC proposes guidance for voluntary carbon credits

The proposal, put forward by the CFTC on Monday, does not seek to modify existing regulatory requirements but instead outline particular commodity characteristics designated contract markets should consider when designing a VCC futures contract’s terms and conditions, said CFTC Chairman Rostin Behnam in a statement. The guidance follows two years of examination of carbon markets by the agency.

“The primary takeaway from this research and public engagement is clear: The commission should act, consistent with its statutory authority under the Commodity Exchange Act, to strengthen market integrity, transparency, and liquidity for derivatives with an underlying VCC that are real, additional, permanent, verifiable, and represent unique metric tons of [greenhouse gas] emissions reduced or removed from the atmosphere,” said Behnam.

CFTC Commissioner Kristin Johnson noted the threat of fraud in the VCC spot market as justification for the agency’s proposal. Her only issue, she said in a statement, is she found the guidance to be “insufficient.”

“I am hopeful that the proposed guidance ushers in discussion and the development of a comprehensive regulatory framework for addressing the deeply concerning, and nearly indisputable, proliferation of fraud in carbon credit markets,” she said.

The CFTC issued an alert in June seeking help from whistleblowers regarding the identification and reporting of potential fraud or manipulation in carbon markets, with Behnam stressing then the importance of integrity in the space. Though he noted in his statement the CFTC is not looking to position itself as a climate policymaker, its focus on risk mitigation and discovery “puts us on the front lines of the now-global nexus between financial markets and decarbonization efforts.”

The comment period for the proposed guidance will run 75 days, closing Feb. 16, 2024.