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

There are two types of carbon markets: compliance markets which are established by governments that control the supply of credits and regulate their trading; and VCMs where private buyers and sellers, who are under no formal obligation to achieve a specific target, exchange carbon credits in a more noncentralized manner. Robust VCMs are critical for reducing greenhouse gas emissions and meeting global reduction goals.

In highlighting the CFTC’s recent work regarding VCMs, Chairman Behnam emphasized that the CFTC is the appropriate regulator for managing climate-related risks as firms and individuals will use derivatives markets to mitigate climate change-induced physical and transition risk. The CFTC’s initiatives in this area have included establishing the Climate Risk Unit (CRU), hosting the VCM Convening, and collaborating with the International Organization of Securities Commissions (IOSCO) through its Sustainable Finance Task Force’s Carbon Market Workstream. Comprised of staff from across the CFTC’s operating divisions and offices, the CRU facilitates industry engagement, research, and dialogue on climate-related market risks and supports the development of relevant products and standards within the CFTC's regulatory framework. Initiated by the CFTC, the VCM Convening was a meeting with various market participants to discuss the role of the CFTC regarding VCMs and the emergence of CFTC-regulated derivatives referencing cash offset markets. Behnam reiterated that an inclusive approach to these markets, in which farmers, ranchers, manufacturers, commercial end-users, and investors all participate, will lead to the further development of VCMs.

After a review of recent regulatory developments surrounding 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 establish guidelines for high-quality carbon offsets.

The CFTC's goal is to ensure the integrity of emerging voluntary carbon credit derivatives markets by holding those markets to established regulatory and compliance standards. Behnam believes the shift to a lower-carbon economy is achievable by increasing the robustness of these markets.

Behnam aims to channel private capital to landowners prepared to sequester carbon now, while also funding scalable carbon removal technologies for the future, all through high-integrity carbon credits. Behnam announced the CFTC’s next step is to finalize regulatory guidance on VCMs and carbon credits in the upcoming months. 

Chairman Behnam's full remarks can be read here.