Editor’s Note: This article was originally written by Grist. here, climate desk collaboration.
Across the United States, more and more companies are committing to zero greenhouse gas emissions through “voluntary carbon offsets.” This is a credit that prevents or removes some amount of climate pollution from the atmosphere.
These credits are bought and sold on an unregulated market and are expected to be of the highest value. $100 billion by 2030has long been criticized for failing to deliver on promised emissions reductions. Some credits come from projects that claim to protect forests that were not threatened by logging. There are also companies that take carbon dioxide out of the atmosphere, but either it is temporary or the same credit he is subject to “double counting” claimed by two separate organizations. Experts call the offset “climate change scam” And a voluntary market for them”Wild West (U.S.)”
Now, federal regulators are starting to take notice, too. One of these is the Commodity Futures Trading Commission (CFTC), an independent government agency responsible for ensuring the stability of the country’s derivatives markets. This week, the Commission held its next meeting. 2nd roundtable discussion Efforts to promote “honesty in high-quality carbon credit derivatives” and other recent actions suggest that the sector is gearing up for a more active regulatory role.
For example, last month the CFTC released the following report: Warning to whistleblowers Asking the public for tips on fraud and manipulation in voluntary carbon markets is a “harbinger” of coercive action against market manipulators, according to Todd Phillips, a researcher at the Roosevelt Institute think tank. It says. Just days later, the CFTC issued a new statement. Environmental Improper Countermeasures Committee Within Enforcement, assist in investigating “fraud and fraud” cases in offset related markets.
“The CFTC is uniquely positioned to address this issue,” Phillips said. “There really is no one else.”
However, it is unclear exactly how they do it.
The Commodity Futures Trading Commission, established by Congress in 1974, regulates the US market for derivatives, which are contracts between parties whose prices are derived from the value of an underlying asset or benchmark. Such contracts help avoid risks. For example, a futures contract guarantees the price at which a particular asset will be sold at some point in the future. Farmers often use this type of contract to ensure that their crops are sold at an agreed price at the end of the harvest, protecting them from market declines. The CFTC’s job, on the other hand, is to ensure that the crops are actually delivered according to the contract.
All this is relatively straightforward when it comes to derivatives involving tangible commodities such as wheat, which the CFTC has long regulated. But when it comes to carbon offsets, things get even more complicated.Offset credits are typically approved by unregulated standard-setters, sold to brokers, and then Purchased by a company or organization If emissions offsets have not yet taken place and are promised to take place at some point in the future, they often count towards decarbonisation pledges via futures contracts. Compared to wheat, it is much less clear what counts as a legitimate provider of carbon credits. Many market participants are concerned that if the underlying commodities (offsets) are based on fraudulent assumptions and do not actually offset climate pollution, then derivatives based on those commodities are also fraudulent.
This is already a big problem. Experts say there is a “pervasive and perverse incentive” among market participants to exaggerate the climate benefits of carbon credits. For example, the motivation for buyers is low prices, and unregulated standard-setters operate carbon credit registers that charge fees based on the volume of credits bought and sold, to enable more sales. We encourage them to set more lenient standards. Already, millions of rainforest-related credits approved by his Verra, the world’s largest standard-setter for voluntary carbon markets,non-additionalThis meant that no additional emission reductions were delivered on top of what would have been expected had the credits not existed.
Vera’s Chief Legal, Policy and Markets Officer Robin Rix acknowledged at the CFTC roundtable on Wednesday that voluntary carbon markets have characteristics that are “susceptible to abuse by bad actors.” But he said it was a “misconception” that voluntary carbon markets lacked transparency, and said his organization supported the CFTC’s “stronger approach to fraud and market manipulation.”
Vera controls two-thirds of the world’s proprietary carbon market. The rest are largely controlled by three other private registries: Climate Action Reserve, Gold Standard and American Carbon Registry.
The CFTC has so far not stepped into this quagmire, but many experts, advocacy groups and even private companies want to. Following the first public meeting of the Commission on Voluntary Carbon Markets last year, dozens of organizations responded to the issue. request information The CFTC says it needs to develop standards for carbon offsets that:Effectively reduce greenhouse gas emissions and serve as the basis for approved derivatives”
Freya Chai, program leader for the climate data nonprofit Carbon Plan, said such standards should require voluntary carbon markets to clearly distinguish between offsets. prevent Carbon footprint — such as if a project developer built a wind farm instead of a coal-fired power plant — delete atmospheric carbon. He also called for greater transparency about the “permanence” of removal-based offsets, or how long carbon is trapped. CO2 exists in the atmosphere for about 1,000 years. On the other hand, carbon credits from offset projects such as afforestation may only sequester carbon for a decade or so, as forests are susceptible to wildfires and illegal logging. Carbon is treated the same as it is obtained from geological sequestration. Injected into rock formations, they are more likely to stay in place.
However, it is not clear whether the CFTC will provide a definition of what constitutes a high-quality carbon offset. Many speakers at Wednesday’s roundtable argued that in order for voluntary carbon markets to “live up to their full potential,” the Commission should leave the work of definition to the private sector, and perhaps voluntarily It should be left in the hands of an independent body called the Carbon Justice Council, he said. market. One of the speakers representing forest owner advocacy groups called on the CFTC to regulate only with a “light touch” that allows standard-setters like Vera to continue to “innovate.”
Phillips of the Roosevelt Institute said the CFTC should simply hold the standard-setters accountable for their claims. During the roundtable, he emphasized three words: “Enforcement, Enforcement, Enforcement.”
Organizations like Verra and the American Carbon Registry “have standards that offsets count as a 1-ton reduction in carbon emissions if they meet those criteria,” Phillips said in an interview with Grist. “If they make such a claim knowing it is not true, it is fraudulent.” In such cases, the CFTC may impose the following actions: civil monetary fines, freeze assets, or limit an organization’s trading authority. The commission may also refer the case to the Justice Department for prosecution.
As carbon markets grow, the CFTC’s efforts are likely to complement or overlap those of other federal agencies to prevent offset-related greenwashing. For example, the Securities and Exchange Commission, an independent regulator responsible for investor protection, advises companies to “certain information‘ describes the offset to use, but it is not yet clear what kind of information this contains. Some experts believe that the Federal Trade Commission, another agency tasked with enforcing consumer protection laws in the United States, will provide more specific (albeit non-binding) high-quality It states that it may intervene by including the definition of carbon offset in . Updated guidelines for environmental marketing labeling.
Phillips, however, has high hopes for the CFTC, which he said has shown the greatest interest in invoking law enforcement action. Indeed, commissioners spoke forcefully on Wednesday about the need to clean up voluntary carbon markets.
“The rapid growth of these markets requires the Commission’s close attention,” Commissioner Christine Johnson told attendees. “Our common goal is to adopt a transparent path that effectively prevents double counting, ensures additionality and prevents fraud.”
The CFTC announced that another information request We are accepting applications from the general public and are accepting applications until August 18th.
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