Opinion, reporting by Mathew Carr

Dec. 5, 2023 — Joe Biden’s Commodity Futures Trading Commission has left open the possibility that it will take the rules of UN carbon markets into account, and/or other multilateral greenhouse gas programs, when approving US-based trade in carbon credits.

In 42-page guidance published yesterday (see below for download), in the final paragraph on the last page mind you, it says and asks this (I add emphasis):

“Certain private sector and multilateral initiatives recognize the implementation by a
crediting program of measures to help ensure that credited mitigation projects or activities
would avoid locking in levels of GHG emissions, technologies or carbon intensive
practices that are incompatible with the objective of achieving net zero GHG emissions by
2050, as a characteristic that helps to inform the integrity of VCCs [voluntary carbon credits] issued by the crediting program.

When designing a Voluntary Carbon Credit derivative contract, should a Designated Contract Market consider whether a crediting program has implemented such measures?“

This should give envoys negotiating article 6 UN markets at COP28 a spring in their step later today and through the middle of December. Article 6 creates new UN carbon markets under the Paris climate accord struck in 2015 and ratified the following year.

There’s a second element of the CFTC guidance that also gives hope to the notion that an efficient globalish carbon market is still possible, if not the most likely scenario amid the fractured geopolitics of 2023 — I’m hoping for world peace by the end of the month too, by the way.

The second of four “quality standards” is this (see the doc for the other three – the whole document is worth reading):

“Additionality – The Underlying VCC [Voluntary Carbon Credit] Represents GHG Emission Reductions or Removals That Would Not Have Been Developed and Implemented in the Absence of the Added Monetary Incentive Created by the Revenue from the Sale of Carbon
Credits.”

This wording gives rise to the possibility — probably not the probability — that if UN envoys do a good enough job on article six rules during the next two weeks … then the UN rules will already be in place … and so the space for CFTC-approved carbon credits might be limited.

When you think about it, this document represents the biggest challenge to UN climate envoys in the 30+ years of UNFCCC history.

If the UN does a high-quality job over the next two weeks, there won’t be much “additional” work for the CFTC to do. The UN would have already provided the “added monetary incentive” to cut the emissions and America will agree to it.

One last point for now on the CFTC guidance.

Note footnote 94.

“17 CFR §§ 40.2(a)(3)(v) (for self-certification) and 40.3(a)(4) (for Commission approval).

The “explanation and analysis” requirement for self-certified contracts provides for such explanation and analysis to be “concise.” The “explanation and analysis” requirement for contracts submitted for prior Commission approval does not include the “concise” qualifier. The Commission requires DCMs [designated contract markets] to provide a more detailed explanation and analysis of contracts that are submitted for affirmative Commission [CFTC] approval.“

For me (and I might be proved wrong) the CFTC, by saying this, is indicating it prefers not to have to do the extra work to make the “affirmative commission approval”.

Having said this, the most likely scenario is the US will probably want some type of veto power over UN decisions on internationally recognised carbon market credits, in my opinion — especially if those credits can be used to meet US GHG-reduction limits (national targets are voluntary under the Paris-agreement’s rules). As I indicated, I do hope I’m wrong.

The key factor in who will be the final arbiter on acceptable credits and credible carbon trade (the US or the UN for US targets, for instance) will be America’s sincerity in pursuing climate justice … or is America merely pursuing a cheap/easy way to signal it’s doing enough toward a global climate solution? The same might be said for the EU, China and other members of the G20.

The bottom line is — there is still hope during the next two weeks for a shift in global markets toward climate protection (and 2030 sustainable development goals).

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