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Key Takeaways from the CFTC Voluntary Carbon Markets Convening

  • Ronan Carr
    Lead Analytical Officer
  • Riley Wagner
    Senior Innovation Manager

This past Wednesday, Ronan Carr, BeZero’s Chief Research Officer, was invited to speak at the Second Voluntary Carbon Markets Convening, hosted by the US Commodity Futures Trading Commission (CFTC). This hybrid event brought together industry leaders to discuss recent private sector initiatives for high-quality carbon credits, current market trends and developments, and market participants’ perspectives on how the CFTC can promote integrity for high-quality carbon credit derivatives. A full recording of the event is available on the CFTC YouTube channel and Ronan’s five-minute presentation begins at 2:50:55.

BeZero’s five takeaways from the event are listed below:

  1. The VCM needs standards
    There is a growing consensus among market stakeholders that there needs to be an increased set of standards within the Voluntary Carbon Market (VCM). However, there were differing opinions as to the best approach. Participants were in support of recent market initiatives such as the Core Carbon Principles to identify low-quality projects from the market. Yet there was an acknowledgement that credit quality is not binary, and that these industry guardrails are not a perfect solution. As such, carbon ratings will continue to play a critical role in assessing risk at the project level. 

  2. An effective mechanism
    While the VCM is still an evolving market, it is one of only a few ways for capital to flow to developing countries to support climate-related projects. Recent US legislation, such as the Inflation Reduction Act of 2022, focuses primarily on cutting domestic sources of greenhouse gas emissions (GHG). To date, the VCM remains one of the most effective market mechanisms for financing GHG emission reductions in developing countries. 

  3. Emerging innovations can scale the market
    The VCM is complex making it difficult for new entrants to navigate the market. That said, recent developments in the market ecosystem, including rating agencies, are helping to address these current shortcomings. Ongoing innovations across the entire VCM value chain are setting the groundwork for the market to scale. 

  4. A strong long term outlook
    Participants expect the recent decline in market transaction volumes - likely due to media criticism and uncertainty surrounding the quality of issued carbon credits - to be short-term. The medium and long-term demand for high-quality credits is expected to increase substantially as companies begin to implement net-zero strategies. 

  5. Influence of federal agencies
    The CFTC can use the power granted in the Commodity Exchange Act to police the VCM and to protect against fraud, manipulation, and market abuse. That said, while the CFTC supports the growth and integrity of all markets, it is not a climate regulator. All attendees representing US federal agencies– the Department of Transportation, the Department of Agriculture, the State Department, and the Treasury Department– echoed that they aim to provide ‘soft’ influence on carbon markets, rather than explicit regulation.