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Comments to CFTC on Voluntary Carbon Credit Derivatives Guidance

In December 2023, the Commodity Futures Trading Commission (CFTC) proposed guidance that identifies key features of high-integrity voluntary carbon credits (VCCs) for exchanges that list certain VCC derivatives. The Institute for Policy Integrity submitted comments that highlight additional sources of CFTC legal authority over these derivatives and suggest improvements to the proposed guidance’s discussions of additionality, leakage risk, quantification, risk of reversal, and exchanges’ discretion to set stringent standards. Finally, our comments recommend that the CFTC explore whether it has other authority to address issues with VCC integrity and whether to seek additional authority from Congress.

More specifically, our comments explained that, in finalizing the Guidance, the CFTC should:

  • Highlight additional sources of its legal authority over VCC derivatives, including Sections 2 and 7 of the Commodity Exchange Act.
  • Expand its definition of additionality and provide specific examples of projects that would or would not meet financial additionality.
  • Recommend that exchanges consider whether crediting programs account for leakage risk, either as a new recommendation or as part of its recommendation on robust quantification.
  • Clarify its recommendation that exchanges consider whether crediting programs apply a “conservative” methodology to quantify projects’ emissions reductions or removals, by, for example, suggesting an uncertainty ratio as an element of a conservative methodology.
  • Address additional issues related to reversal risk, including how timing may affect the number of VCCs needed to account for harm attributable to reversal.
  • Remind exchanges of their discretion to implement more stringent quality standards for VCC derivatives, including requirements that the underlying VCCs possess the characteristics of high-integrity VCCs.