The Voluntary Carbon Market (VCM) is gaining significance as a vital tool to mobilize private capital for combating climate change. Alongside global initiatives like SBTi, VCMI, and ICVCM that establish commonly accepted standards for a high-integrity VCM, regulatory bodies such as the Commodity Futures Trading Commission (CFTC) and the International Organization of Securities Commissions (IOSCO) are increasingly engaged in supporting the growth of high-integrity carbon markets.
On July 19, the CFTC hosted its Second Convening to discuss the future of the VCM and explore the role of regulatory bodies, government departments and market participants in its growth. Here we delve into the key takeaways from the event, highlighting the CFTC's commitment to the VCM, the U.S. government’s “whole-of-government” approach to climate action, and the proactive engagement of market participants in shaping a high-integrity and scalable VCM.
Chairman Rostin Behnam's opening remarks reiterated the CFTC's commitment to the VCM, emphasizing the importance of leveraging anti-fraud and anti-manipulation authority to ensure market integrity. In the past month, the CFTC's Whistleblower Office issued an alert seeking tips relating to carbon market misconduct, the CFTC's Division of Enforcement created a new Environmental Fraud Task Force, and during the convening it was announced that the CFTC's Climate Risk Unit will be drafting agency guidance addressing VCM standards. The Chairman also noted that an issuance of a request for public comment on this guidance would likely be forthcoming.
Encouragingly, the CFTC recognizes the significance of collaborating with the private sector, stating that it is “not a climate regulator” and confirming that it is “not within our authority to require that market participants comply with a specific climate policy or foreclose access to our regulated markets based on any such policy.” Recognizing the global nature of carbon markets, Chairman Behnam also underscored his appreciation for the importance of securing global alignment of standards, particularly the ongoing work of IOSCO.
The convening witnessed widespread support for CFTC engagement in the VCM. Given the acknowledged need for enhanced credibility, most participants favored CFTC engagement, although with differing points of emphasis. Several leading market participants called for a light regulatory touch regarding spot markets, leveraging ICVCM/VCMI work and ensuring transparency in information sharing, while urging the CFTC to prioritize efforts on ensuring the integrity of the futures market. Both Verra and Gold Standard voiced support for CFTC engagement, while several market participants agreed that CFTC guidelines beyond enforcement actions would help encourage corporations to participate in the market.
An array of key U.S. government departments showcased their commitment to scaling up climate action and supporting the VCM:
A remarkable breadth of stakeholders expressed their dedication to establishing a high-integrity and scaled-up VCM. Organizations ranging from the World Bank, International Swaps and Derivatives Association (ISDA), and rating agencies to NGOs, financiers and exchanges demonstrated unanimity of purpose. The VCM was hailed as a critical tool, particularly in the absence of comprehensive government regulations. Stakeholders recognized the urgent need to mobilize private capital to meet ambitious climate change goals.
The CFTC’s Second Convening on the VCM shed light on the collective efforts to shape a reliable and scalable VCM. The CFTC's commitment to using its power in a collaborative and strategic manner, coupled with a whole-of-government approach to climate action, provides a solid foundation for the market's future, while active participation from diverse market participants reinforces the VCM's importance and the urgency to mobilize private capital effectively. With enthusiasm and capital waiting to be deployed, clear guidance, increased transparency and efficient market mechanisms will play a pivotal role in unlocking the VCM's full potential. The future of the VCM is bright — and it promises to contribute significantly to the global fight against climate change.
Watch the CFTC’s Second Convening on the VCM here.
Flowcarbon develops climate solutions leveraging new technologies and innovative financing solutions to scale the voluntary carbon market.