CFTC continues to explore its role in voluntary carbon markets 

Chairman Behnam announces a workstream to draft guidance addressing standards

20 July 2023


The US Commodity Futures Trading Commission held its second "voluntary carbon markets convening" on 19 July to gather expert input on the state of the carbon markets.   

Kari S. Larsen (second from left), a partner, Willkie Farr & Gallagher, represented FIA at the Voluntary Carbon Markets Convening on 19 July.

CFTC Chairman Rostin Behnam emphasized in his opening statement that the voluntary carbon markets are at a critical point in their development and indicated that he sees a key role for his agency in helping them mature.  

"The CFTC has an important policy responsibility to promote product innovation, price discovery, and liquidity for high-quality carbon credits that are the underlying commodity for derivatives products listed on CFTC-registered exchanges" as well as "an increasingly critical role in policing for fraud and manipulation in underlying and related markets," he said. 

Behnam went on to announce that the CFTC is launching a workstream to draft "agency guidance addressing standards in the voluntary carbon markets" which would be put forward for public comment. 

Commissioner Christy Goldsmith-Romero in her opening statement expressed her support for bringing more of the voluntary carbon markets onto exchanges, which "would increase transparency and bring greater confidence to the markets.” Goldsmith-Romero also expressed her support for the CFTC's recent formation of a task force in its enforcement division to combat fraud in the carbon markets.  

Commissioner Kristin Johnson used her opening statement to express her hope that the convening will lead to “tangible actionable next steps” that the CFTC can take with its existing authority to address climate-related financial risk.  

During the five-hour meeting, the group discussed a wide range of issues, including: 

  • a market overview of the current and forecasted state of the voluntary carbon markets;  
  • the CFTC’s recent enforcement announcements;  
  • public sector initiatives related to carbon markets;  
  • recent private sector standardization initiatives;  
  • current trends and developments in the cash and derivatives markets for carbon credits; and  
  • market participants’ perspectives on how the CFTC can promote integrity for high quality carbon credit derivatives. 

The speakers included representatives from other branches of the US government, exchanges that list carbon futures as well as spot markets for carbon offsets, and a wide range of standard-setters and market participants.  

FIA was represented on the panel focused on the perspectives of market participants by Kari Larsen, partner at the law firm of Willkie Farr & Gallagher. She also serves on the FIA board of directors. 

In her remarks, Larsen emphasized that "FIA believes in the power of well-regulated markets to drive price discovery and provide opportunities for risk management that are critically important for the transition to a lower carbon economy."  

Larsen commended the CFTC's efforts to promote public dialogue toward better understanding developments, challenges, and opportunities in voluntary carbon markets and, looking forward, encouraged the CFTC to: 

  • coordinate with global regulators and standard-setting bodies to align the legal and regulatory treatment of voluntary carbon offsets as practical across jurisdictions; 
  • prioritize actions that will allow for continued innovation and growth of these emerging markets and products; 
  • continue engaging with stakeholders during the development of new rules and standards, as well as through the formal comment process.  

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