Voluntary carbon markets are widely considered to have an important role to play in achieving greenhouse gas emissions goals. Market demand from entities and individuals purchasing carbon credits that are created through investments in nature-based or technology-based projects have fueled growth of the sector, with demand projected to increase by a factor of 15 or more by 2030 and a factor of 100 by 2050.
ISDA is focused on developing strong legal standards to encourage consistency in the definition of voluntary carbon credits (VCCs), as well as provide clarity on the bankruptcy and regulatory treatment in key jurisdictions for both primary and secondary markets.
Consistent with this objective, this whitepaper has been published to: (i) discuss some legal and regulatory questions relating to voluntary carbon markets; (ii) describe the oversight of primary and derivatives markets under Commodity Futures Trading Commission (CFTC) rules; and (iii) explain why VCC derivatives are considered commodity derivatives by the CFTC. The paper also recommends the CFTC could use its experience in regulating commodity derivatives markets as a blueprint for enhancing its oversight of voluntary carbon derivatives markets by employing a combination of private-sector and regulatory tools.