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The US Commodity Futures Trading Commission (CFTC) plans to finalise its carbon credits rulebook within the next six months, marking a significant step towards market integrity and fraud prevention.
Aerial view of Tongass National Forest. AI generated picture.
CFTC Commissioner Christy Goldsmith Romero announced that the final guidance is expected by the end of the year, potentially as early as September. Speaking at City Week 2024 in London, Romero emphasised the importance of reliability in carbon credit trading.
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The move follows a tumultuous period for the carbon credit market, which has seen instability and overblown green claims. Currently, most carbon credits are traded over the counter, leading to confusion and scrutiny. Companies are eager for clear standards to avoid allegations of greenwashing.
The CFTC's forthcoming guidelines will set a baseline for commodity exchanges listing futures and derivative products based on carbon credits. The initial draft was released in December 2023, and the CFTC is now reviewing public comments.
Industry participants are welcoming more regulation to avoid conflicts with investors and regulators. Kyle Harrison, head of sustainability research at BloombergNEF, described the draft guidance as a significant integrity boost for the $2 billion carbon offset market.
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The CFTC's final rules will likely incorporate standards from the Integrity Council for the Voluntary Carbon Market, chaired by former SEC Commissioner Annette Nazareth. She noted the market's potential for positive opportunities despite current challenges.
Additionally, the International Organization of Securities Commissions, co-chaired by CFTC Chairman Rostin Behnam, is conducting a consultation on carbon markets. The US government is also expected to unveil its own quality standards soon.
The CFTC has established an environmental fraud task force and a whistleblower programme to tackle potential wrongdoing in the carbon market. While no cases have been brought yet, several investigations are active.
Romero highlighted the importance of weeding out bad actors to boost market confidence. The CFTC's whistleblower programme offers up to 30% of collected monetary sanctions as rewards, with over $3 billion in sanctions and $330 million in awards granted since 2014.
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