In a recent article titled “What the Heck is Happening in the VCM,” we wrote that the voluntary carbon market (VCM) is going through a tightening phase due to various best-practice guidelines by well-intentioned groups. The overarching goal of these measures is to enhance the integrity of carbon credits in both the supply and demand sides of the market which will ultimately increase confidence in the VCM.
One more group is climbing into the integrity ring, and it could pack a pretty big punch.
The United States Commodity Futures Trading Commission (CFTC) recently held its Second Voluntary Carbon Market Convening on July 19, to examine advances in the spot and derivatives markets for carbon credits and review initiatives for high-quality carbon markets.
The CFTC’s role is to promote open, competitive, and stable markets by safeguarding the public’s interests in commodity and financial futures, and options trading. Their jurisdiction includes carbon credits, particularly for futures contracts listed on CFTC-designated contract markets (DCMs). The commission holds enforcement authority and regulatory oversight over DCMs, including the VCM, and can enforce anti-fraud and anti-manipulation measures in related spot markets for carbon credits. This extends to carbon allowances and other environmental commodities connected to futures contracts.
During the 6-hour convening, market participants including Bloomberg, Sylvera, BeZero Carbon, and others were invited to share their opinions on how the CFTC can enhance transparency and integrity in the carbon credits markets.
Apart from the recent convening, the CFTC has been actively engaged in other VCM efforts. In June, they issued an announcement seeking whistleblower tips related to fraud and manipulation in carbon markets, focusing on issues like manipulative trading, “ghost” credits, double counting, and fraudulent statements. Additionally, the commission recently established the Environmental Fraud Task Force to address environmental fraud and misconduct in derivatives and relevant spot markets, including the VCM. This task force aims to monitor fraud connected to the environmental benefits of purchased carbon credits.
Overall, the CFTC is making substantial efforts to improve the carbon credit market through education, anti-fraud measures, intelligence, and coordination. The possibility of adopting a stringent review process for self-certified environmental products listed on exchanges and bringing more of the carbon credit market onto exchanges could enhance transparency and boost confidence in pricing. Moreover, the listing standards established in derivatives markets could serve as an example of potential changes in the spot market.
What impacts the CFTC’s efforts produce are yet to be seen but for a market that is in dire need of increased oversight, the Commission’s initiatives are welcome news.
Note, the CFTC has opened a portal for public comments. Comments should be submitted online via their portal and use the subject line “‘CFTC Second Voluntary Carbon Markets Convening.” The portal closes on August 18, 2023.
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Last week we introduced one of the most common climate finance acronyms in the space — REDD+. There are two primary project types that fall under the REDD+ umbrella. This week, we present one of them.
APD
APD stands for “Avoided Planned Deforestation” and refers to projects that prevent areas of primary forest from being chopped down and converted for other purposes such as farmland or cattle ranches.
APD also provides safeguards for forests from being cut by smaller groups for subsistence like firewood or timber.
