The Commodities Futures Trading Commission (CFTC), the US government agency regulating the derivatives market has adopted first guidelines to regulate the use of derivatives in the carbon offset market, in a bid to standardise the market.
The guidance applies to CFTC-regulated derivatives exchanges and outlines the factors exchanges need to consider such as the contract design and listing process for derivatives.
Derivatives are a crucial element of voluntary carbon market with corporations using derivatives such as futures or swaps to meet their carbon requirements. However, US policy makers are acutely aware that these deals do not always lead to better outcomes for the planet, as a Joint Policy Statement by the White House, the US Department of Energy, Agriculture and the Treasury produced in May warned: “Unlike many commodities, the physical delivery of the tonnes of emissions reductions or removals that underpin credits is not typically taken by the buyer, but instead by the earth’s atmosphere.”
Net Zero Investor’s ANNUAL CONFERENCE | 24-10-2024 | BOOK YOUR PLACE
The latest CFTC guidance was welcomed by US secretary of the Treasury, Janet Yellen as a important step towards improving liquidity and price transparency in voluntary carbon markets: “ I look forward to continued collaboration with the CFTC and other government agencies involved in shaping the development of responsible, high-functioning, and high-integrity VCMs as part of the Biden-Harris Administration’s ambitious efforts to tackle the climate crisis and accelerate a clean energy transition that benefits all Americans” she stressed.
