CFTC discusses voluntary regulatory prospects for the carbon market

Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam recently spoke about voluntary carbon markets (VCM) in a speech titled “Climate at the Center of the Economy.”

There are two types of carbon markets: compliance markets, which are set up by governments that control the supply of credits and regulate their trading; and VCM, where private buyers and sellers who have no formal obligation to meet a specific target exchange carbon credits in a more non-centralized way. Robust VCMs are crucial to reducing greenhouse gas emissions and achieving global reduction targets.

Highlighting the CFTC’s recent work on VCM, Chairman Behnam emphasized that the CFTC is the right regulator to manage climate-related risks as companies and individuals will use derivatives markets to mitigate physical and transition risks posed by climate change. The CFTC’s initiatives in this area include establishing a Climate Risk Unit (CRU), hosting the VCM meeting and working with the International Organization of Securities Commissions (IOSCO) through the Sustainable Finance Task Force within the Carbon Market Working Group. Consisting of staff from all CFTC operational departments and offices, the CRU facilitates industry engagement, research and dialogue on climate-related market risks and supports the development of appropriate products and standards within the CFTC regulatory framework. The VCM Convening, initiated by the CFTC, was a meeting with various market participants to discuss the CFTC’s role with respect to VCM and the emergence of CFTC-regulated derivatives relating to cash offset markets. Behnam reiterated that an inclusive approach to these markets, involving farmers, growers, producers, commercial end users and investors, will lead to further development of VCM.

After reviewing recent regulatory developments relating to carbon markets and credits, Behnam concluded that the CFTC should continue to use its anti-fraud and anti-manipulation enforcement authority to regulate these markets and the CFTC should contribute to establishing high-quality guidelines carbon offsetting.

The CFTC’s goal is to ensure the integrity of emerging voluntary carbon credit derivatives markets by maintaining these markets in accordance with established regulatory and compliance standards. Behnam believes that the transition to a low-carbon economy can be achieved by increasing the stability of these markets.

Behnam’s goal is to direct private capital to landowners willing to sequester carbon now, while also financing scalable carbon removal technologies for the future, all through high-integrity carbon credits. Behnam announced that the CFTC’s next step will be to finalize regulatory guidance on VCM and carbon credits in the coming months.

You can read Chairman Behnam’s full remarks here.