The CFTC Finalizes Guidance on Voluntary Carbon Credit Contracts for Derivatives Markets
The Commodity Futures Trading Commission ("CFTC" or "Commission") has inserted itself in recent years into efforts to scale the cash market for "high integrity" voluntary carbon credits. On September 20, 2024, the Commission approved final guidance regarding designated contract markets ("DCMs") listing for trading voluntary carbon credit ("VCCs") derivative contracts. The guidance outlines factors for DCMs to consider when addressing relevant Commodity Exchange Act Core Principles and Commission regulations. Although the guidance couches its content as factors for consideration by DCMs, the tone and other aspects of the guidance seem to indicate, at least in some cases, an expectation by the Commission that designated contract markets will treat those factors as requirements. The guidance will likely increase scrutiny of VCCs from both DCMs and the Commission, which the existing recordkeeping and record production obligations that the Commission emphasized in the guidance will facilitate.
Given the outcome of the presidential election, the Commission might attempt to withdraw the guidance, though other agencies have failed in this regard due to Administrative Procedure Act shortcomings.
