Sep 20 (Reuters) – The U.S. Commodity Futures Trading Commission on Friday approved the first guidelines for trading voluntary carbon credit derivatives contracts in the U.S.
Carbon credit derivative contracts are financial instruments that derive their value from carbon credits, which represent the right to emit one metric ton of carbon dioxide or an equivalent amount of greenhouse gases.
The contracts allow traders and market participants to hedge or speculate on the future price of carbon credits, similar to how traditional derivative contracts work in commodities or financial markets.
Regulators have pushed for greater scrutiny of voluntary carbon markets, which have developed outside government oversight, due to concerns about quality and double counting.
The US derivatives watchdog has issued guidance for derivatives exchanges to crack down on price manipulation.
“The CFTC’s unique mission focused on risk mitigation and price discovery places us at the front lines of the now-global nexus between financial markets and decarbonization efforts,” said CFTC Chairman Rostin Behnam.
Regulators in the Americas and Europe are increasingly concerned about greenwashing.
Earlier this year, the CFTC said it was investigating greenwashing – when companies exaggerate their environmental credentials – as part of its crackdown on fraud and misconduct in voluntary carbon markets.
In May, the U.S. government unveiled rules to regulate the use of voluntary carbon credits, seeking to boost confidence in a nascent market after some high-profile offset projects failed to deliver promised emissions reductions.
“Voluntary carbon markets can help unleash the power of private markets to reduce emissions, but that can only happen if we address significant existing challenges,” Treasury Secretary Janet Yellen said at the time.
Many companies “offset” their own greenhouse gas emissions by purchasing voluntary carbon credits, which represent the avoidance or elimination of emissions through projects largely located in developing countries.
(Reporting by Manya Saini in Bengaluru; editing by Krishna Chandra Eluri)
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