89410 Federal Register / Vol. 88, No. 247 / Wednesday, December 27, 2023 / Notices 

1 17 CFR 145.9. 

2CFTC Mission Statement, available at: https:// 

www.cftc.gov/About/AboutTheCommission. 

3See CEA section 3(b), 7 U.S.C. 5(b). 

was accompanied by a Presidential 

Memorandum titled ‘‘Modernizing 

United States Spectrum Policy and 

Establishing a National Spectrum 

Strategy,’’ which calls for the Secretary 

of Commerce, acting through NTIA, to 

publish an Implementation Plan for the 

Strategy. This will chart the course for 

federal agency actions, pursuant to the 

Presidential Memorandum, to further 

the policy objectives stated in the 

Strategy. 

The strategic objectives in the Strategy 

are grouped under four ‘‘pillars’’ for 

further action: 

• Pillar One: A spectrum pipeline to 

ensure U.S. leadership in advanced and 

emerging technologies; 

• Pillar Two: Collaborative long-term 

planning to support the nation’s 

evolving spectrum needs; 

• Pillar Three: Unprecedented 

spectrum innovation, access, and 

management through technology 

development; and 

• Pillar Four: Expanded spectrum 

expertise and elevated national 

awareness. 

Speakers from the Department of 

Commerce, the Executive Office of the 

President, the Federal Communications 

Commission and Congress have been 

invited to provide keynote remarks. 

Panelists are expected to include 

participants from the FCC, Executive 

Branch agencies, and the private sector. 

Prior to the symposium event, NTIA 

will post detailed program information 

on its website: www.ntia.gov. 

The symposium is open to the public 

and members of the press to attend or 

to view through a webcast available on 

the NTIA website. While it is not 

required, NTIA asks that online 

attendees provide registration 

information prior to the event. This 

information will include names, email 

addresses, and organizations (optional). 

Registration information, the agenda, 

meeting updates, if any, and other 

relevant documents will be available on 

NTIA’s website. 

The event webcast will be closecaptioned. Individuals requiring special 

accommodations, such as sign language 

interpretation or other ancillary aids, 

should notify Mr. Alden at the contact 

information listed above at least ten (10) 

business days before the event. 

Stephanie Weiner, 

Chief Counsel, National Telecommunications 

and Information Administration. 

[FR Doc. 2023–28564 Filed 12–26–23; 8:45 am] 

BILLING CODE 3510–60–P 

COMMODITY FUTURES TRADING 

COMMISSION 

RIN 3038–AF40 

Commission Guidance Regarding the 

Listing of Voluntary Carbon Credit 

Derivative Contracts; Request for 

Comment 

AGENCY: Commodity Futures Trading 

Commission 

ACTION: Proposed guidance; request for 

comment. 

SUMMARY: The Commodity Futures 

Trading Commission (the 

‘‘Commission’’ or ‘‘CFTC’’) is issuing for 

public comment this proposed guidance 

regarding the listing for trading of 

voluntary carbon credit (‘‘VCC’’) 

derivative contracts. Specifically, the 

Commission is proposing to issue 

guidance to outline factors that 

designated contract markets (‘‘DCMs’’) 

should consider when addressing 

certain provisions of the Commodity 

Exchange Act (‘‘CEA’’), and CFTC 

regulations thereunder, that are relevant 

to the listing for trading of VCC 

derivative contracts. The Commission 

recognizes that VCC derivatives are a 

comparatively new and evolving class of 

products, and believes that guidance 

that outlines factors for a DCM to 

consider in connection with product 

design and listing may help to advance 

the standardization of such products in 

a manner that promotes transparency 

and liquidity. The Commission requests 

comment on this proposed guidance 

and further invites comment on specific 

questions related to the listing for 

trading of VCC derivative contracts. 

DATES: Comments must be received on 

or before February 16, 2024. 

ADDRESSES: You may submit comments, 

identified by ‘‘Commission Guidance 

Regarding the Listing of Voluntary 

Carbon Credit Derivative Contracts’’ and 

RIN 3038–AF40, by any of the following 

methods: 

• CFTC Comments Portal: https:// 

comments.cftc.gov. Select the ‘‘Submit 

Comments’’ link for this release and 

follow the instructions on the Public 

Comment Form. 

• Mail: Send to Christopher 

Kirkpatrick, Secretary of the 

Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW, 

Washington, DC 20581. 

• Hand Delivery/Courier: Follow the 

same instructions as for Mail, above. 

Please submit your comments using 

only one of these methods. Submissions 

through the CFTC Comments Portal are 

encouraged. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to https:// 

comments.cftc.gov. You should submit 

only information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that you believe is exempt from 

disclosure under the Freedom of 

Information Act (‘‘FOIA’’), a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the Commission’s regulations.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse, or 

remove any or all of your submission 

from https://www.comments.cftc.gov 

that it may deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the guidance will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under FOIA. 

FOR FURTHER INFORMATION CONTACT: 

Lillian A. Cardona, Assistant Chief 

Counsel, (202) 418–5012, lcardona@

cftc.gov; Steven Benton, Industry 

Economist, (202) 418–5617, sbenton@

cftc.gov; Nora Flood, Chief Counsel, 

(202) 418–6059, nflood@cftc.gov; 

Division of Market Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. The Regulatory Framework for DCMs 

The CFTC’s mission is to promote the 

integrity, resilience, and vibrancy of the 

U.S. derivatives markets through sound 

regulation.2 An independent agency of 

the U.S. federal government, the CFTC 

exercises the authorities granted to it 

under the CEA to promote market 

integrity, prevent price manipulation 

and other market disruptions, protect 

customer funds, and avoid systemic 

risk, while fostering responsible 

innovation and fair competition in the 

derivatives markets.3

DCMs are CFTC-regulated exchanges 

that provide participants in the 

derivatives markets with the ability to 

execute or trade derivative contracts 


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4See CEA section 1a(6), 7 U.S.C. 1a(6). (The term 

‘‘board of trade’’ means any organized exchange or 

other trading facility); CEA section 1a(51)(A), 7 

U.S.C. 1a(51)(A) (The term ‘‘trading facility’’ means 

a person or group of persons that constitutes, 

maintains, or provides a physical or electronic 

facility or system in which multiple participants 

have the ability to execute or trade agreements, 

contracts, or transactions—(i) by accepting bids or 

offers made by other participants that are open to 

multiple participants in the facility or system; or (ii) 

through the interaction of multiple bids or multiple 

offers within a system with a pre-determined nondiscretionary automated trade matching or 

execution algorithm); and CEA section 5(d)(1)(A), 7 

U.S.C. 7(d)(1)(A) (To be designated, and maintain 

a designation, as a contract market, a board of trade 

shall comply with—(i) any core principle described 

in this subsection; and (ii) any requirement that the 

Commission may impose by rule or regulation 

pursuant to CEA section 8a(5)). 

5See, generally, CEA Section 5(d), 7 U.S.C. 7(d). 

There are 23 statutory Core Principles for DCMs. 

6CEA section 5(d)(1)(A), 7 U.S.C. 7(d)(1)(A). 

7 DCM Core Principle 2 requires, among other 

things, that a DCM establish, monitor, and enforce 

compliance with the rules of the DCM, including 

access requirements, the terms and conditions of 

any contracts to be traded on the DCM, and rules 

prohibiting abusive trade practices on the DCM. 

DCM Core Principle 2 also requires a DCM to have 

the capacity to detect, investigate, and apply 

appropriate sanctions to any person that violates 

any rule of the DCM. CEA section 5(d)(2), 7 U.S.C. 

7(d)(2). See also 17 CFR 38.150–160. DCM Core 

Principle 13 requires that a DCM establish and 

enforce disciplinary procedures that authorize the 

DCM to discipline, suspend, or expel members or 

market participants that violate the DCM’s rules. 

CEA section 5(d)(13), 7 U.S.C. 7(d)(13). See also 17 

CFR 38.700–712. 

8 DCM Core Principle 9 requires, among other 

things, that a DCM provide a competitive, open, and 

efficient market and mechanism for executing 

transactions that protects the price discovery 

process of trading in the centralized market of the 

DCM. CEA section 5(d)(9), 7 U.S.C. 7(d)(9). See also 

17 CFR 38.500. 

9See, e.g., DCM Core Principles 4, 5, and 12, 

discussed infra. 

10CEA section 5(d)(4) 7 U.S.C. 7(d)(4). See also 

17 CFR 38.250–258. 

11CEA section 5(d)(5), 7 U.S.C. 7(d)(5). See also 

17 CFR 38.300–301. 

12CEA section 5(d)(12), 7 U.S.C. 7(d)(12). See also 

17 CFR 38.650–651. 

13CEA section 5(d)(3), 7 U.S.C. 7(d)(3). See also 

17 CFR 38.200–201. 

14CEA section 5c(c)(1), 7 U.S.C. 7a–2(c)(1). See 

also 17 CFR 40.2. 

15CEA sections 5c(c)(4)–(5), 7 U.S.C. 7a–2(c)(4)– 

(5). See also 17 CFR 40.3. 

16See, generally, 17 CFR 40.2 and 40.3. 

Amendments to contract terms and conditions also 

must be submitted to the Commission in 

accordance with procedures set forth at CEA section 

5c(c), 7 U.S.C. 7a–2(c), and Part 40 of the 

Commission’s regulations. 

17Unless otherwise determined by the 

Commission by rule or regulation, a DCM has 

reasonable discretion in establishing the manner in 

which it complies with a Core Principle. CEA 

section 5(d)(1)(B), 7 U.S.C. 7(d)(1)(B). 

18 17 CFR part 38. 

19 17 CFR part 38, Appendix B. 

20 Guidance provides contextual information 

regarding a Core Principle, including important 

concerns which the Commission believes should be 

considered in complying with the Core Principle. 

The guidance for a DCM Core Principle is 

illustrative only of the types of matters that a DCM 

may address, and is not intended to be used as a 

mandatory checklist. Acceptable practices are more 

detailed examples of how a DCM may satisfy 

particular requirements of a DCM Core Principle. 

Similar to guidance, acceptable practices are for 

illustrative purposes only, and do not establish a 

mandatory means of Core Principle compliance. 17 

CFR part 38, Appendix B. 

21 17 CFR part 38, Appendix C. Guidance set forth 

in Appendix B to Part 38 states that a DCM may 

use the Appendix C Guidance as guidance in 

meeting DCM Core Principle 3 for both new product 

listings and existing listed contracts. 17 CFR part 

38, Appendix B, Core Principle 3 Guidance. 

22See Core Principles and Other Requirements for 

Designated Contract Markets, 77 FR 36612 at 36632 

(June 19, 2012). The Appendix C Guidance is also 

relevant to swap execution facilities (‘‘SEFs’’), 

another category of CFTC-regulated exchange that 

provides eligible contract participants with the 

ability to execute or trade, with one another, 

derivative contracts that are swaps. Like DCMs, 

SEFs are obligated by statute only to permit trading 

in contracts that are not readily susceptible to 

manipulation. See CEA section 5h(f)(3), 7 U.S.C 7b– 

3(f)(3); 17 CFR 37.301. 

23Physically-settled derivative contracts are 

contracts that may settle directly into the 

commodity underlying the contract. If the holder of 

a position in a physically-settled derivative contract 

still has an open position at the expiration of 

trading in the contract, then the position holder 

must, in accordance with the rules for delivery set 

forth in the contract, make or take delivery (as 

applicable) of the underlying commodity. By 

contrast, cash-settled derivative contracts are, at the 

expiration of trading in the contract, settled by way 

of a cash payment instead of physical delivery of 

the underlying commodity. 

24Appendix C Guidance, paragraph (b)(1). 

with one another.4 In order to obtain 

and maintain designation with the 

CFTC, DCMs must comply with 

statutory ‘‘Core Principles’’ that are set 

forth in the CEA,5 as well as applicable 

CFTC rules and regulations.6 The 

statutory Core Principles for DCMs 

reflect the important role that these 

exchanges play in promoting the 

integrity of derivatives markets. DCMs 

are self-regulatory organizations, and 

each DCM has Core Principle 

obligations to, among other things, 

establish and enforce rules for trading 

on the DCM; 7 provide a competitive, 

open and efficient market for trading; 8

and monitor trading activity.9 For 

example, DCM Core Principle 4 requires 

a DCM to have the capacity and 

responsibility to prevent manipulation, 

price distortion, and disruptions of the 

delivery or cash settlement process, 

through market surveillance, 

compliance, and enforcement practices 

and procedures.10 DCM Core Principle 5 

requires a DCM to adopt for each 

contract that it lists for trading, as is 

necessary and appropriate, position 

limitations or position accountability for 

speculators, in order to reduce the 

potential threat of market manipulation 

or congestion, especially during trading 

in the delivery month.11 DCM Core 

Principle 12 requires a DCM to establish 

and enforce rules to protect markets and 

market participants from abusive 

practices, and to promote fair and 

equitable trading on the DCM.12

Additionally, each DCM has a specific 

statutory obligation, under DCM Core 

Principle 3, to only list for trading 

contracts that are not readily susceptible 

to manipulation.13 As discussed in 

greater detail below, a DCM may 

generally elect to list a new derivative 

contract for trading either by certifying 

to the Commission that the contract 

complies with the CEA and CFTC 

regulations,14 or by seeking Commission 

approval of the contract.15 In either 

case, the DCM must submit the 

contract’s terms and conditions, and 

other prescribed information relating to 

the contract, to the Commission prior to 

listing.16

For a number of the statutory Core 

Principles for DCMs, the Commission 

has adopted rules that establish the 

manner in which a DCM must comply 

with the Core Principle.17 These 

implementing rules are set forth in Part 

38 of the Commission’s regulations.18

The Commission has also adopted, in 

Appendix B to Part 38,19 guidance and 

acceptable practices for DCMs to take 

into consideration with respect to 

certain of the Core Principles.20

With respect to the DCM Core 

Principle 3 requirement that a DCM 

only list for trading contracts that are 

not readily susceptible to manipulation, 

the Commission has adopted guidance 

that is set forth in Appendix C to Part 

38 of the Commission’s regulations (the 

‘‘Appendix C Guidance’’).21 The 

Appendix C Guidance outlines certain 

relevant considerations for a DCM when 

developing derivative contract terms 

and conditions, and providing 

supporting documentation and data in 

connection with the submission of the 

derivative contract to the Commission.22

The Commission takes these 

considerations into account when 

determining whether, with respect to 

the contract, the DCM is satisfying its 

Core Principle obligation only to list 

contracts that are not readily susceptible 

to manipulation. 

Among other things, the Appendix C 

Guidance outlines, for both physicallysettled and cash-settled derivative 

contracts, certain considerations in 

connection with the design of the 

contract’s rules and terms and 

conditions.23 With respect to 

physically-settled derivative contracts, 

the Appendix C Guidance states, among 

other things, that the contract’s terms 

and conditions should conform to the 

most common commercial practices and 

conditions in the cash market for the 

underlying commodity.24 The Appendix 


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25 Id. 

26Appendix C Guidance, paragraph (b)(2). 

27Appendix C Guidance, paragraph (c)(1). 

28Appendix C Guidance, paragraph (c)(2). 

29 Id. 

30 Id. 

31This proposed guidance uses the term 

‘‘voluntary carbon credits’’ rather than ‘‘verified 

carbon credits,’’ as the proposed guidance is 

focused on the quality and other attributes of the 

intangible commodity underlying a derivative 

contract. The Commission recognizes that market 

participants in the cash or secondary market for 

voluntary carbon credits may choose to use a set of 

standardized terms for the trading and retirement of 

‘‘verified carbon credits,’’ as defined by the 

International Swaps and Derivatives Association 

(‘‘ISDA’’), in the market participants’ physicallysettled spot, forward or option transactions. See 

2022 ISDA Verified Carbon Credit Transactions 

Definitions (‘‘VCC Definitions’’) Frequently Asked 

Questions, available at: https://www.isda.org/a/ 

jBXgE/2022-ISDA-Verified-Carbon-CreditTransactions-Definitions-FAQs-061323.pdf. 

32While the term ‘‘carbon’’ is generally intended 

to also include other greenhouse gases, such as 

methane, nitrous oxide, sulfur hexafluoride, hydro 

fluorocarbons and perfluorocarbons, most 

emissions trading involves emissions trading of 

carbon dioxide. 

33An agreement, contract or transaction in an 

environmental commodity may qualify for the 

forward exclusion from the ‘‘swap’’ definition set 

forth in section 1a(47) of the CEA, 7 U.S.C. 1a(47), 

if the agreement, contract or transaction is intended 

to be physically settled. For further discussion of 

the Commission’s interpretation of whether 

agreements, contracts, or transactions in 

environmental commodities fall within the forward 

exclusion from the swap definition, see Further 

Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and 

‘‘Security-Based Swap Agreement’’; Mixed Swaps; 

Security-Based Swap Agreement Recordkeeping; 

Final Rule, 77 FR 48208 (August 13, 2012). 

34See, for example, the United Nation’s Clean 

Development Mechanism (‘‘CDM’’), the California 

Compliance Offset Program, the Regional 

Greenhouse Gas Initiative (‘‘RGGI’’), the Alberta 

Emission Offset System (‘‘AEOS’’), and the EU 

Emissions Trading System (‘‘ETS’’). 

35See, e.g., The Integrity Council for the 

Voluntary Carbon Market Carbon Core Principles, 

Section 5 Definitions, available at: https:// 

icvcm.org/wp-content/uploads/2023/07/CCPSection-5-R2-FINAL-26Jul23.pdf. 

36This is calculated as the difference in GHG 

emission reductions or removals from a baseline 

scenario, to the emission reductions or removals 

occurring under the carbon mitigation project or 

activity, with any adjustments for leakage. See The 

Integrity Council for the Voluntary Carbon Market 

Carbon Core Principles, Section 5 Definitions, 

available at: https://icvcm.org/wp-content/uploads/ 

2023/07/CCP-Section-5-R2-FINAL-26Jul23.pdf. 

37The Board of the International Organization of 

Securities Commissions (‘‘IOSCO’’) published a 

Voluntary Carbon Markets consultation for public 

comment. The IOSCO consultation paper sought 

feedback on a potential approach that regulatory 

authorities and market participants could take to 

foster sound and well-functioning voluntary carbon 

market structure and, as a consequence, scale up 

these markets to allow them to achieve their 

environmental objectives. Voluntary Carbon 

Markets, Discussion Paper, CR/06/22, November 

C Guidance also states that the 

contract’s terms and conditions should 

be designed to avoid impediments to the 

delivery of the underlying commodity, 

so as to promote convergence between 

the price of the contract and the cash 

market value of the underlying 

commodity at the expiration of trading 

in the contract.25 The Appendix C 

Guidance outlines certain criteria that 

should be addressed in the contract’s 

terms and conditions, including 

contract size, the period for making and 

taking delivery under the contract, 

delivery points, quality standards for 

the underlying commodity, and 

inspection/certification procedures for 

verifying compliance with those quality 

standards or any other related delivery 

requirements under the contract.26

The criteria outlined in the Appendix 

C Guidance that relate to the quality and 

other attributes of the underlying 

commodity that would be delivered 

under a physically-settled contract upon 

the expiration of trading, inform the 

pricing of the contract. Addressing these 

criteria clearly in the contract’s terms 

and conditions, in a manner that reflects 

the individual characteristics of the 

underlying commodity, helps to ensure 

that trading in the contract is based on 

accurate information about the 

underlying commodity. This, in turn, 

helps to promote accurate pricing and 

helps to reduce the susceptibility of the 

contract to manipulation. Further, when 

a contract’s terms and conditions help 

to ensure that, upon delivery, the 

quality and other attributes of the 

underlying commodity will be as 

expected by position holders, this helps 

to prevent price distortions and fosters 

confidence in the contract that can 

incentivize trading and enhance 

liquidity. 

With respect to cash-settled derivative 

contracts, the Appendix C Guidance 

states that an acceptable specification of 

the cash settlement price would, among 

other things, include rules that fully 

describe the essential economic 

characteristics of the underlying 

commodity, as well as how the final 

settlement price is calculated.27 The 

Appendix C Guidance states that the 

utility of a cash-settled contract for risk 

management and price discovery 

purposes would be significantly 

impaired if the cash settlement price is 

not a reliable or robust indicator of the 

value of the underlying commodity.28

The Appendix C Guidance states that, 

accordingly, careful consideration 

should be given to the potential for 

manipulation or distortion of the cash 

settlement price, as well as the 

reliability of that price as an indicator 

of cash market values.29 Appropriate 

consideration also should be given to 

the commercial acceptability, public 

availability, and timeliness of the price 

series that is used to calculate the cash 

settlement price.30

B. Voluntary Carbon Markets 

1. Overview of Voluntary Carbon 

Markets 

As discussed further below, this 

proposed guidance addresses an 

emerging class of climate-related 

derivative contracts listed for trading by 

DCMs, where the underlying 

commodity is a VCC.31

In addition to direct greenhouse gas 

(‘‘GHG’’) emissions reduction 

initiatives, market-based mechanisms, 

such as carbon markets,32 have 

developed to support emissions 

reduction efforts. A carbon market 

generally refers to an economic 

mechanism to support the buying and 

selling of environmental commodities 33

that represent GHG emission reductions 

or removals from the atmosphere. 

Carbon markets are intended to harness 

market forces to incentivize carbon 

mitigation activities. Carbon markets 

generally fall into two categories: (i) 

mandatory (or compliance) markets, and 

(ii) voluntary carbon markets. 

Mandatory markets, such as cap-andtrade programs, emissions trading 

systems and allowance trading systems, 

are established and regulated by 

national, regional, or international 

governmental bodies.34 Entities subject 

to the requirements of a mandatory 

market generally must demonstrate 

compliance by directly reducing their 

emissions from their own operations or 

activities, or by purchasing eligible 

compliance credits representing 

emission reductions or removals 

achieved by others. 

Voluntary carbon markets are not 

established by any government body. 

They enable market participants to 

purchase, on a voluntary basis, carbon 

credits that upon retirement represent 

reductions or removals of GHG 

emissions. A voluntary carbon credit, or 

‘‘VCC,’’ is a tradeable intangible 

instrument that is issued by a carbon 

crediting program (‘‘crediting 

program’’).35 The general industry 

standard is for a VCC to represent a 

GHG emissions reduction to, or removal 

from, the atmosphere equivalent to one 

metric ton of carbon dioxide.36

A participant in the voluntary carbon 

markets may purchase a VCC, 

representing an emissions reduction or 

removal by another party, to 

supplement emissions reductions or 

removals achieved from the 

participant’s own operations or 

activities. Liquid and transparent 

markets in high-integrity VCCs may 

serve as a tool to facilitate emissions 

reduction efforts.37


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2022, available at: https://www.iosco.org/library/ 

pubdocs/pdf/IOSCOPD718.pdf. 

38Currently, the four largest crediting programs in 

the voluntary carbon markets are the American 

Carbon Registry, the Climate Action Reserve, the 

Gold Standard and the Verified Carbon Standard. 

39A baseline scenario is the predicted or assumed 

outcome in the absence of the incentives created by 

carbon credits, holding all other factors constant. 

40Funding by investors for a mitigation project or 

activity could begin as early as the planning stage. 

Early investors may enter into agreements with a 

project developer for funding in exchange for 

discounted VCCs, once issued. 

41Factors that may affect the price of VCCs issued 

for any particular mitigation project or activity may 

include the type of the project or activity, the 

geographic location of the project or activity, and 

the methodology or protocol used to measure the 

levels of emissions reductions or removals 

associated with the project or activity. Types of 

carbon mitigation projects or activities for which 

VCCs are issued include renewable energy, 

industrial gas capture, energy efficiency, forestry 

initiatives (avoiding deforestation), regenerative 

agriculture, wind power, and biogas. The location 

of a mitigation project or activity may, for example, 

impact the cost of implementing and/or operating 

the project or activity. Mitigation projects and 

activities for which VCCs are issued are located in 

countries worldwide. See Berkeley Voluntary 

Registry Offsets Database, available at: https:// 

gspp.berkeley.edu/research-and-impact/centers/ 

cepp/projects/berkeley-carbon-trading-project/ 

offsets-database. 

42Observed trading of VCCs is not as readily 

transparent as for other financial instruments. Spot 

markets for VCCs are still largely bespoke, with 

buyers purchasing directly from project developers 

or via intermediaries. Some exchanges for trading 

VCCs have been established and are evolving. For 

example, the AirCarbon Exchange (https://acx.net/ 

acx-singapore/), located in Singapore; Carbon Trade 

Exchange (https://ctxglobal.com/), located in the 

United Kingdom; and Xpansiv CBL (https:// 

xpansiv.com/cbl/), located in the United States. 

43See, e.g., Forbes, Carbon Neutral Claims Under 

Investigation In Greenwashing Probe (June 16, 

2023), available at: https://www.forbes.com/sites/ 

amynguyen/2023/06/16/carbon-neutral-claimsunder-investigation-in-greenwashing-probe/ 

?sh=2a6170466431. 

44Federal Trade Commission, Guides for the Use 

of Environmental Marketing Claims, Regulatory 

Review Notice and Request for Public Comment, 87 

FR 77,766 (December 20, 2022) (Federal Trade 

Commission request for public comment on 

updating its Green Guides to include claims made 

regarding carbon offsets). 

45Transcript of Commission’s Second Voluntary 

Carbon Markets Convening (July 19, 2023), Kyle 

Harrison, stating, ‘‘Because you have an oversupply, 

you have a surplus of cheaper credits and 

Continued 

The process by which VCCs are 

issued deserves careful consideration, as 

that process informs VCC quality and, 

by extension, the overall integrity and 

effective functioning of voluntary 

carbon markets. Generally, parties that 

play a role in the issuance of a VCC 

include: (1) the developer of a 

mitigation project or activity that is 

intended to reduce or remove GHG 

emissions from the atmosphere (‘‘project 

developer’’); (2) a crediting program 

that, among other things, issues VCCs 

for mitigation projects or activities that 

satisfy the crediting program’s 

standards; 38 and (3) an independent 

third party that verifies and validates 

the mitigation project or activity. 

A project developer must first select 

the crediting program with which it 

seeks to certify its mitigation project or 

activity. The crediting program will 

certify the project or activity if it 

satisfies the crediting program’s 

standards for issuing VCCs. A crediting 

program generally engages an 

independent third party to review 

project or activity documentation, 

including, among other things, to verify 

the accuracy of the estimated amount of 

emission reductions or removals that are 

expected to be associated with the 

project or activity, based on the project’s 

or activity’s baseline scenario 39 and the 

crediting program’s methodology or 

protocol for quantifying reduction or 

removal levels. The estimated emission 

reductions or removals serve as the 

basis for the determination of the 

number of VCCs to be issued for the 

project or activity. 

Once the crediting program 

determines that the mitigation project or 

activity satisfies the crediting program’s 

standards for issuing VCCs, the project 

or activity will be certified. The 

crediting program typically operates or 

makes use of a registry, which serves as 

a central repository for tracking certified 

mitigation projects or activities and 

their associated VCCs. Once registered, 

VCCs associated with a mitigation 

project or activity may be bought and 

sold to end users (businesses or 

individuals) or to intermediaries such as 

brokers or aggregators that provide 

liquidity to voluntary carbon market 

participants.40

2. Initiatives To Promote Transparency, 

Integrity and Standardization in the 

Voluntary Carbon Markets 

As the voluntary carbon markets have 

continued to develop and mature, 

private sector and multilateral 

initiatives have sought to address 

certain issues—relevant to both the 

supply side (generation of VCCs from 

carbon mitigation projects or activities), 

and the demand side (businesses or 

individuals purchasing VCCs)— 

impacting the speed at which 

transparent, robustly traded markets for 

high-integrity VCCs are scaled. 

On the supply side, a key focus has 

been on the quality of VCCs, 

particularly, whether they accurately 

reflect the nature and level of GHG 

emission reductions or removals that 

they are intended to represent. Given 

the current absence of a standardized 

methodology or protocol to quantify 

emissions reduction or removal levels, 

there is a possibility that methodologies 

or protocols of differing degrees of 

robustness may calculate different 

reduction or removal impacts for two 

projects that are identical in type and 

size (or even for the same project). This 

could result in different amounts of 

carbon credits being issued for each 

project, despite their actual reduction or 

removal impact being the same. It may 

also create incentives for project 

developers to seek to apply the 

quantification protocol or methodology, 

or to seek to certify with the crediting 

program, that would result in the 

issuance of the most credits. Among 

other things, these possibilities create 

challenges for accurately pricing VCCs. 

Further, it can be difficult to discern the 

extent to which the price of any 

particular VCC reflects the price of one 

metric ton of carbon dioxide equivalent 

reduced or removed from the 

atmosphere, and the extent to which the 

price reflects understandings or 

concerns relating to the mitigation 

project or activity for which the VCC 

was issued, or other aspects of the 

process for issuing the VCC.41

Challenges with respect to accurately 

ascertaining VCC quality, and associated 

pricing challenges,42 can erode 

confidence in voluntary carbon markets. 

Furthermore, opaque or inadequate 

calculation methodologies or protocols, 

which can obscure or mischaracterize 

the carbon impact of a mitigation project 

or activity, can undermine both the 

integrity and purpose of those markets. 

On the demand side, concerns have 

been raised that, in connection with 

meeting their carbon mitigation goals, 

businesses or individuals may be 

utilizing low integrity VCCs which do 

not accurately reflect the nature or level 

of GHG emission reductions or removals 

that are associated with the mitigation 

projects or activities for which the VCCs 

have been issued.43 This can raise 

questions not only about the business’s 

or individual’s progress towards their 

goals, but also about whether any claims 

related to those goals are misleading.44

Market participants that are purchasing 

VCCs to help meet their mitigation goals 

may be focused largely or primarily on 

price, and also may not have ready 

access to all of the information that they 

need to make informed evaluations, and 

comparisons, of VCC quality. All of this 

may incentivize, intentionally or not, 

the purchase of lower quality VCCs. 

This may be facilitated by the opaque 

pricing of VCCs, as described above— 

and by the fact that, recently, supplies 

of VCCs are generally considered to be 

high relative to demand.45


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companies can go ahead and use those in many 

cases as a band-aid solution, as opposed to decarbonizing and reducing their gross emissions,’’ 

available at: https://www.cftc.gov/sites/default/ 

files/2023/11/1700165549/SVCMC_

transcript071923.pdf. 

46See, e.g., The Integrity Council for the 

Voluntary Carbon Market’s Core Carbon Principles 

(July 2023), available at: https://icvcm.org/wpcontent/uploads/2023/07/CCP-Book-R2-FINAL26Jul23.pdf; the International Civil Aviation 

Organization’s Carbon Offsetting and Reduction 

Scheme for International Aviation (‘‘CORSIA’’) 

(2023), available at: https://www.icao.int/ 

environmental-protection/CORSIA/Pages/ 

default.aspx; the G7 Principles of High Integrity 

Carbon Markets (2023), available at: https:// 

www.meti.go.jp/information/g7hirosima/energy/ 

pdf/Annex004.pdf. 

47See, e.g., the World Wildlife Fund (WWF–US), 

Environmental Defense Fund (EDF) and OekoInstitut’s Carbon Credit Quality Initiative (https:// 

carboncreditquality.org/); the Tropical Forest Credit 

Integrity Guide for Companies: Differentiating 

Tropical Forest Carbon Credit by Impact, Quality, 

and Scale (https://tfciguide.org/); and the Voluntary 

Carbon Markets Integrity Initiative’s Claims Code of 

Practice (https://vcmintegrity.org/vcmi-claims-codeof-practice/). 

48The Chicago Climate Futures Exchange 

(‘‘CCFE’’) listed a Sulfur Financial Instruments 

Current Vintage Delivery futures contract in 2005. 

In 2006, the New York Mercantile Exchange 

(‘‘NYMEX’’) listed a nitrogen oxide (‘‘NOX’’) 

Emissions Allowance futures contract. In 2007, 

CCFE listed the first Carbon Financial Instrument 

futures contract and other emission contracts. In 

2008, NYMEX listed the first RGGI futures contract. 

In 2011, Green Exchange listed its European Union 

Allowance futures contract. In 2012, NYMEX listed 

its California Carbon Allowance futures contract. To 

date, there have been over 1,500 mandatory 

emissions-related futures and options contracts 

listed for trading on various DCMs. The vast 

majority of those contracts are no longer listed for 

trading. 

49Examples of derivatives contracts on 

mandatory emissions program instruments, such as 

renewable energy credits (‘‘RECs’’) and renewable 

fuel standards (‘‘RFS’’), that currently have open 

interest include: the ICE Futures U.S. (‘‘ICE U.S.’’) 

PJM Tri Qualified Renewable Energy Certificate 

Class I futures contract; the ICE U.S. Texas 

Compliance Renewable Energy Certificate from CRS 

Listed Facilities Front Half Specific futures 

contract; the ICE U.S. New Jersey Compliance 

Renewable Energy Certificate Class II futures 

contract; the Chicago Mercantile Exchange (‘‘CME’’) 

Ethanol T2 FOB Rotterdam Including Duty (Platts) 

futures contract; the ICE U.S. Biofuel Outright—D4 

RINS (OPIS) futures contract; the ICE U.S. RGGI 

Vintage 2024 futures contract; and the ICE U.S. 

California Carbon Allowance Current Auction 

futures contract. 

50For example, NYMEX lists the following 

physically-settled futures contracts based on 

voluntary carbon market products: (1) CBL Global 

Emissions Offset (GEO) futures contract; (2) CBL 

Nature-Based Global Emissions Offset (N–GEO) 

futures contract; (3) CBL Core Global Emissions 

Offset (C–GEO) futures contract; (4) CBL NatureBased Global Emissions Offset Trailing futures 

contract; and (5) CBL Core Global Emissions Offset 

Trailing futures contract. Nodal Exchange lists the 

following physically-settled futures and options 

contracts based on voluntary carbon market 

products: (1) Verified Emission Reduction—NatureBased Vintage 2017 futures and options contracts; 

(2) Verified Emission Reduction—Nature-Based 

Vintage 2018 futures and options contracts; (3) 

Verified Emission Reduction—Nature-Based 

Vintage 2019 futures and options contracts; (4) 

Verified Emission Reduction—Nature-Based 

Vintage 2020 futures and options contracts; (5) 

Verified Emission Reduction—Nature-Based 

Vintage 2021 futures and options contracts; (6) 

Verified Emission Reduction—Nature-Based 

Vintage 2022 futures and options contracts; (7) 

Verified Emission Reduction—Nature-Based 

Vintage 2023 futures contract; (8) Verified Emission 

Reduction—Nature-Based Vintage 2024 futures 

contract; (9) Verified Emission Reduction—NatureBased Vintage 2025 futures contract; (10) Verified 

Emission Reduction—Nature-Based futures and 

options contracts; (11) Carbon Removal futures 

contract; (12) Verified Emission Reduction— 

CORSIA-Eligible futures and options contracts; and 

13) Global Emission Reduction futures contract. 

51The NYMEX CBL Global Emissions Offset 

(GEO) futures contract; the NYMEX CBL NatureBased Global Emissions Offset (N–GEO) futures 

contract; and the NYMEX CBL Core Global 

Emission Offset (C–GEO) futures contract are 

currently the only listed futures contacts with open 

interest and trading volume. Information is 

available at: https://www.cmegroup.com/markets/ 

energy/emissions/cbl-global-emissionsoffset.volume.html. 

52The CME Group CBL contracts permit VCCs to 

be delivered from the Verified Carbon Standard 

(‘‘VCS’’) Verra Registry, the American Carbon 

Registry (‘‘ACR’’), and the Climate Action Reserve 

(‘‘CAR’’). The Nodal contracts permit VCCs to be 

delivered from VCS’s Verra Registry and from the 

Gold Standard Impact Registry, as well as from the 

American Carbon Registry for certain contracts. 

53For the official announcement of the convening 

and related materials, See https://www.cftc.gov/ 

PressRoom/Events/opaeventcftccarbon

marketconvene060222. 

Private sector and multilateral efforts 

have spearheaded the development of 

various initiatives to address the above 

challenges, and to promote 

transparency, integrity and 

standardization in the voluntary carbon 

markets. To support and promote VCC 

quality, these private sector and 

multilateral initiatives have focused on 

developing standards for high-integrity 

VCCs.46 Among other things, these 

standards are intended to help provide 

assurance that the VCCs that have been 

issued for a carbon mitigation project or 

activity accurately reflect the actual 

GHG emissions reduction or removal 

levels associated with that project or 

activity. These standards also generally 

highlight the importance of effective 

crediting program processes, 

procedures, and governance 

arrangements, in ensuring that a 

crediting program is issuing high 

integrity VCCs. 

Standards that assist market 

participants in making informed 

evaluations, and comparisons, of VCC 

quality may promote accurate pricing 

and enhance confidence that the 

voluntary carbon markets can serve as a 

tool to assist in emissions reduction 

efforts. Such standards can thereby play 

a valuable role in supporting market 

transparency and liquidity, and the 

scaling of high-integrity voluntary 

carbon markets. 

Such standards may also support 

initiatives being developed to address 

concerns about the accuracy of claims 

made by purchasers of VCCs regarding 

the role that VCCs play in the 

purchasers’ progress toward carbon 

mitigation goals.47 Such standards 

could serve as a foundation or reference 

for criteria that purchasers of VCCs 

could voluntarily adhere to, in order to 

demonstrate their commitment to using 

high integrity VCCs to support their 

mitigation goals, and to being 

transparent in their progress towards 

those goals. 

C. The Commission and Voluntary 

Carbon Markets 

1. Derivative Contracts on 

Environmental Commodities, Including 

VCCs 

Derivative contracts on environmental 

commodities have been trading on 

CFTC-regulated exchanges for decades. 

Derivative contracts on mandatory 

emissions program instruments have 

been trading since 2005, with GHG 

emissions-related instruments first 

listed in 2007.48 There are currently 

over 150 derivative contracts on 

mandatory emissions program 

instruments listed on DCMs.49 As of 

November 2023, eighteen futures 

contracts on voluntary carbon market 

products have been submitted by DCMs 

to the Commission for listing.50 Three of 

those contracts currently have open 

interest.51

Derivative contracts on VCCs base 

their prices on the spot price of VCCs. 

For example, NYMEX’s CBL Global 

Environmental Offset futures contracts, 

and Nodal Exchange’s Verified Emission 

Reduction futures and options contracts, 

are physically-settled contracts. If the 

holder of a position in the contract still 

has an open position at the expiration 

of trading in the contract, then the 

position holder must, in accordance 

with the rules for delivery set forth in 

the contract, make or take delivery (as 

applicable) of 1,000 VCCs that meet the 

contract’s rules for delivery eligibility.52

2. Initiatives Relating to Voluntary 

Carbon Markets 

First Voluntary Carbon Markets 

Convening 

In June 2022, Chairman Behnam held 

the first-ever Voluntary Carbon Markets 

Convening to discuss issues related to 

the supply of and demand for high 

quality carbon credits, including 

product standardization and the data 

necessary to support the integrity of 

carbon credits’ GHG emissions removal 

and reduction claims.53 A further goal of 

this convening was to gather 

information from a wide variety of 


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54Request for Information on Climate-Related 

Financial Risk, 87 FR 34856 (June 8, 2022). 

55 In addition to soliciting feedback on all aspects 

of climate-related financial risk as it may pertain to 

the derivatives market, the RFI also specifically 

requested feedback on ten categories of information: 

1. Data, 2. Scenario Analysis and Stress Testing, 3. 

Risk Management, 4. Disclosure, 5. Product 

Innovation, 6. Voluntary Carbon Markets, 7. Digital 

Assets, 8. Financially Vulnerable Communities, 9. 

Public-Private Partnerships/Engagement, and 10. 

Capacity Coordination. The RFI stated that the 

Commission may use responsive information to 

inform potential future actions including, but not 

limited to, the issuance of new or amended 

guidance, interpretations, policy statements, or 

regulations, or other potential Commission action. 

56Twenty-five commenters on the RFI responded 

to questions regarding product innovation and 44 

commenters on the RFI responded to questions 

regarding the voluntary carbon markets. 

57 International Swaps and Derivatives 

Association (‘‘ISDA’’) at 6; American Petroleum 

Institute (‘‘API’’) at 4; Center for American Progress 

at 10; Environmental Defense Fund at 12; Futures 

Industry Association (‘‘FIA’’) at 9; Intercontinental 

Exchange, Inc. (‘‘ICE’’) at 4. 

58CME Group at 10, FIA at 3; ISDA at 7. 

59Heritage Foundation at 7. 

60See, e.g., API at 3; ISDA at 6; Verra at 2. With 

respect to the Commission’s spot market anti-fraud, 

false-reporting, and anti-manipulation authority, 

see, e.g., CEA section 6(c)(1), 7 U.S.C. 9(1), which 

prohibits any person from using or employing, or 

attempting to use or employ, in connection with a 

contract for sale of any commodity in interstate 

commerce, any manipulative or deceptive device or 

contrivance, in contravention of rules and 

regulations promulgated by the Commission; CEA 

section 9(a)(2), 7 U.S.C. 13(a)(2), which among other 

things makes it a felony for any person to 

manipulate or attempt to manipulate the price of 

any commodity in interstate commerce; and 

implementing Commission rules at Part 180 of the 

CFTC’s regulations, 17 CFR part 180. In June 2023, 

the CFTC’s Whistleblower Office issued an alert 

notifying the public on how to identify and report 

potential CEA violations connected to fraud or 

manipulation in the carbon markets. See CFTC 

Whistleblower Alert, available at: https:// 

www.whistleblower.gov/sites/whistleblower/files/ 

2023-06/06.20.23%20Carbon%20

Markets%20WBO%20Alert.pdf. Also in June 2023, 

the CFTC’s Division of Enforcement announced the 

creation of an Environmental Fraud Task Force to 

combat environmental fraud and misconduct. 

Specifically, the Task Force’s mission is to address 

fraud and other misconduct in both the derivatives 

markets and the relevant spot markets (e.g., 

voluntary carbon markets) and to examine, among 

other things, fraud with respect to the purported 

environmental benefits of purchased carbon credits. 

See CFTC Release Number 8736–23 (‘‘CFTC 

Division of Enforcement Creates Two New Task 

Forces’’) available at: https://www.cftc.gov/ 

PressRoom/PressReleases/8736-23. 

61For the official announcement of the convening 

and related materials, see https://www.cftc.gov/ 

PressRoom/Events/opaeventvoluntarycarbon

markets071923. 

62 In 2022, ISDA published a whitepaper 

providing background on the cash and derivatives 

markets for voluntary carbon credits. See Voluntary 

Carbon Markets: Analysis of Regulatory Oversight 

in the US. (2022), available at: https:// 

www.isda.org/2022/06/02/voluntary-carbonmarkets-analysis-of-regulatory-oversight-in-the-us/. 

market participants in the voluntary 

carbon markets to better understand the 

potential role of the official sector in 

these markets, particularly in 

connection with the emergence of 

CFTC-regulated derivatives referencing 

VCCs. The convening included 

participants from carbon credit standard 

setting bodies, a crediting program, 

private sector integrity initiatives, spot 

platforms, DCMs, intermediaries, endusers, public interest groups, and others. 

Commission Request for Information 

In June 2022, the Commission issued 

for public comment a Request for 

Information (‘‘RFI’’) 54 in order to better 

inform the Commission on how, 

consistent with its statutory authority, 

to address climate-related financial risk 

as pertinent to the derivatives markets 

and underlying commodities markets.55

The responsive comments that the 

Commission received included feedback 

on specific questions relating to product 

innovation and voluntary carbon 

markets.56 Several commenters 

expressed support for the Commission 

to take steps that could support 

transparency and confidence in the 

voluntary carbon markets, particularly 

through recognition or support of 

private sector and multilateral 

initiatives to promote standardization 

and integrity.57 In connection with 

product innovation, certain commenters 

expressed the view that the 

Commission’s current statutory 

framework and regulations are sufficient 

to regulate voluntary carbon market 

derivatives products.58 While there 

were comments expressing different 

views on the reach of the Commissions’ 

jurisdiction to regulate voluntary carbon 

markets,59 many commenters supported 

the Commission utilizing its spot market 

anti-fraud and anti-manipulation 

authority in the voluntary carbon 

market space.60

Second Voluntary Carbon Markets 

Convening 

In July 2023, Chairman Behnam held 

the Second Voluntary Carbon Markets 

Convening. The purpose of this 

convening was to discuss recent private 

sector initiatives for high quality carbon 

credits; current trends and 

developments in the cash and 

derivatives markets for carbon credits; 

public sector initiatives related to 

carbon markets; and market 

participants’ perspectives on how the 

CFTC can promote integrity for high 

quality carbon credit derivatives.61

II. Guidance Regarding the Listing of 

VCC Derivative Contracts 

The Commission is proposing 

guidance that outlines factors that DCMs 

should consider when addressing 

certain requirements under the CEA and 

CFTC regulations that are relevant to the 

listing for trading of VCC derivative 

contracts. The Commission recognizes 

that VCC derivatives are a 

comparatively new and evolving class of 

products,62 and believes that guidance 

that outlines factors for a DCM to 

consider in connection with product 

design and listing may help to advance 

the standardization of such products in 

a manner that promotes transparency 

and liquidity. 

This proposed guidance addresses 

certain Core Principle compliance 

considerations, as well as certain 

requirements relating to the submission 

of new contracts, and contract 

amendments, to the Commission. This 

proposed guidance is not intended to 

modify or supersede existing statutory 

or regulatory requirements, or existing 

Commission guidance that addresses the 

listing of derivative products by CFTCregulated exchanges, including the 

Appendix C Guidance. Rather, taking 

into account certain unique attributes of 

VCC derivatives and voluntary carbon 

markets, this proposed guidance 

outlines particular matters that a DCM 

should consider, to help ensure 

compliance with existing requirements 

when listing a VCC derivative contract. 

Among other things, this proposed 

guidance addresses how certain aspects 

of the Appendix C Guidance should be 

understood to apply in the specific 

context of VCC derivative contracts. 

This proposed guidance focuses 

primarily on the listing by DCMs of 

physically-settled VCC derivative 

contracts. In part, this focus reflects the 

fact that all VCC derivative contracts 

that are currently listed for trading on 

DCMs are physically-settled contracts. 

To date, no DCM has listed for trading 

a cash-settled VCC derivative contract. 

In addition, the Commission believes 

that at this juncture in the evolution of 

VCC derivatives as a product class, it 

may be of particular benefit to outline 

considerations for a DCM, when 

developing contract terms and 

conditions, that can help to ensure that, 

upon delivery, the quality and other 

attributes of the underlying VCC will be 

as expected by position holders. This 

will support accurate pricing, help 

reduce the susceptibility of the contract 

to manipulation, and foster confidence 

in the contract that can enhance 

liquidity. 

While this proposed guidance focuses 

primarily on physically-settled VCC 

derivative contracts, the Commission 

continues to believe that, with respect to 

cash-settled derivative contracts, an 

acceptable specification of the cash 


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63Appendix C Guidance, paragraph (c)(1). 

64As noted herein, and for the avoidance of 

doubt, this proposed guidance is not intended to 

modify or supersede the Appendix C Guidance, 

which outlines considerations for both cash-settled 

and physically-settled derivative contracts— 

including considerations that are not touched on in 

this proposed guidance. DCMs are reminded to 

consult and consider the Appendix C Guidance 

when developing terms and conditions, and 

contract submissions to the Commission, for all 

derivative product types—including VCC derivative 

products. 

65As noted above, the Appendix C Guidance is 

also relevant to SEFs, which, like DCMs, are 

obligated by statute only to permit trading in 

contracts that are not readily susceptible to 

manipulation. CEA section 5h(f)(3), 7 U.S.C.3 7b– 

3(f)(3). Like DCMs, SEFs also are subject to a 

statutory obligation to monitor trading in swaps to 

prevent manipulation, price distortion, and 

disruptions of the delivery or cash settlement 

process through surveillance, compliance, and 

disciplinary practices and procedures. CEA section 

5h(f)(4) 7 U.S.C 7b–3(f)(4). See also 17 CFR 37.400– 

408. 

66See also, e.g., International Emissions Trading 

Association comment in response to the Second 

Voluntary Carbon Markets Convening at 5–6 

(stating that the CFTC is in a fortunate position to 

leverage the evolving work of existing initiatives to 

support the drive for quality and integrity in the 

voluntary carbon markets), and BP America, Inc. 

comment in response to the Second Voluntary 

Carbon Markets Convening at 3 (supporting 

guidance for CFTC regulated exchanges.) 

67For example, the Commission may in the future 

revisit this guidance, or issue additional guidance, 

to further address the listing of cash-settled VCC 

derivatives contracts, including index-based 

contracts, or to further address the listing of VCC 

derivative contracts by SEFs. 

68For the avoidance of doubt, this proposed 

guidance does not address the regulatory treatment 

of any underlying VCC or associated offset project 

or activity, including whether any such product, 

project or activity may qualify as a swap or be 

eligible for the forward contract exclusion under 

Commission’s ‘‘swaps’’ definition. See Further 

Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and 

‘‘Security-Based Swap Agreement’’; Mixed Swaps; 

Security-Based Swap Agreement Recordkeeping; 

Final Rule, 77 FR 48208 (August 13, 2012). 

69CEA section 5(d)(3), 7 U.S.C. 7(d)(3). 

70As noted above, the Appendix C Guidance is 

also relevant to SEFs, which are similarly obligated 

by statute only to permit trading in contracts that 

are not readily susceptible to manipulation. CEA 

section 5h(f)(3); 7 U.S.C. 7b–3(f)(3). 

71Appendix C Guidance, paragraph (b)(2)(i)(A). 72 Id. 

settlement price would include rules 

that fully describe the essential 

economic characteristics of the 

underlying commodity.63 Accordingly, 

the Commission preliminarily believes 

that discussions in this proposed 

guidance of VCC commodity 

characteristics that a DCM should 

consider when developing the terms 

and conditions of a physically-settled 

VCC derivative contract, should also be 

considered for cash-settled derivative 

contracts that settle to the price of a 

VCC, unless otherwise noted.64

Further, while this proposed guidance 

focuses on the listing of VCC derivative 

contracts by DCMs, the Commission 

preliminarily believes that the proposed 

guidance also should be considered by 

any SEF that may seek to permit trading 

in swap contracts that settle to the price 

of a VCC, or in physically-settled VCC 

swap contracts.65

In developing this proposed guidance, 

the Commission has considered those 

public comments on the RFI that 

addressed product innovation and 

voluntary carbon markets. Taking into 

account those public comments, the 

Commission believes that this proposed 

guidance furthers the agency’s mission 

and may help to advance the 

standardization of VCC derivative 

contracts in a manner that fosters 

transparency and liquidity, accurate 

pricing, and market integrity.66

The Commission recognizes that 

VCCs and voluntary carbon markets are 

evolving and that it may therefore be 

appropriate for the Commission to 

revisit this guidance or to issue 

additional guidance in the future,67 as 

VCCs and voluntary carbon markets 

continue to develop and mature.68

A. A DCM Shall Only List Derivative 

Contracts That Are Not Readily 

Susceptible to Manipulation 

As discussed above, DCM Core 

Principle 3 provides that a DCM shall 

only list for trading derivative contracts 

that are not readily susceptible to 

manipulation.69 With respect to DCM 

Core Principle 3, the Appendix C 

Guidance outlines certain relevant 

considerations for a DCM when 

developing contract terms and 

conditions and providing supporting 

documentation and data in connection 

with the submission of a contract to the 

Commission.70

With respect to a physically-settled 

derivative contract, the Appendix C 

Guidance states that the terms and 

conditions of the contract ‘‘should 

describe or define all of the 

economically significant characteristics 

or attributes of the commodity 

underlying the contract.’’ 71 Among 

other things, failure to specify the 

economically significant attributes of 

the underlying commodity may cause 

confusion among market participants, 

who may expect a commodity of 

different quality, or with other features, 

to underlie the contract. This may 

render the precise nature of the 

commodity that the contract is pricing 

ambiguous, and make the contract 

susceptible to manipulation or price 

distortion. 

The Appendix C Guidance states that, 

for any particular contract, the specific 

attributes of the underlying commodity 

that should be described or defined in 

the contract’s terms and conditions 

‘‘depend upon the individual 

characteristics of the commodity.’’ 72

Where the underlying commodity is a 

VCC, the Commission recognizes that 

standardization and accountability 

mechanisms for VCCs are currently still 

developing. The Commission believes 

that the fact that standardization and 

accountability mechanisms for VCCs are 

currently still developing is, itself, an 

‘‘individual characteristic of the 

commodity’’ that should be taken into 

account by a DCM when designing a 

VCC derivative contract and addressing 

the underlying commodity in the 

contract’s terms and conditions. 

To that end, the Commission 

recognizes that, while standardization 

and accountability mechanisms for 

VCCs are currently still being 

developed, there are certain 

characteristics that have been identified 

broadly—across both mandatory and 

voluntary carbon markets—as helping to 

inform the integrity of carbon credits. 

The Commission preliminarily believes 

that a DCM should take these 

characteristics—referred to in this 

proposed guidance as ‘‘VCC commodity 

characteristics,’’ and discussed more 

fully below—into consideration when 

designing a VCC derivative contract, 

and addressing in the contract’s terms 

and conditions the underlying VCC. The 

Commission believes that consideration 

of these VCC commodity characteristics 

will help the DCM to ensure that it 

understands, and is clearly specifying in 

the contract’s terms and conditions, the 

economically significant attributes of 

the underlying VCC. 

As a general matter, the Commission 

believes that a DCM should consider the 

VCC commodity characteristics when 

selecting one or more crediting 

programs from which eligible VCCs, 

meeting the derivative contract’s 

specifications, may be delivered at the 

contract’s expiration. The Commission 

believes that this will help the DCM 

evaluate whether the crediting program 

is a reliable source of high integrity 

VCCs. 

More specifically, the Commission 

preliminarily believes that, at a 

minimum, a DCM should consider the 

VCC commodity characteristics when 

addressing the following criteria in the 

design of a VCC derivative contract: 

• Quality standards, 

• Delivery points and facilities, and 

• Inspection provisions. 

These are among the criteria 

identified in the Appendix C Guidance 

as criteria that should be addressed in 

the terms and conditions of a 

physically-delivered derivative contract. 


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73As is the case for physically-settled VCC 

derivative contracts, for cash-settled derivative 

contracts that settle to the price of a VCC, it is 

important to clearly specify the VCC quality 

standards in the contract’s terms and conditions to 

help ensure that the pricing of the contract reflects 

the quality of the VCC underlying the contract. 

74For example, a project or activity may not be 

considered to be ‘‘additional’’ if the project or 

activity is already required by law, regulation, or 

any other legally binding mandate applicable in the 

project’s or activity’s jurisdiction. 

75The term ‘‘cheapest-to-deliver’’ refers to the 

least expensive commodity that can be delivered 

under the derivative contract that otherwise meets 

the contract’s specifications. 

As discussed above, addressing these 

criteria clearly in the contract’s terms 

and conditions helps to ensure that 

trading in the contract is based on 

accurate information about the 

underlying commodity. This, in turn, 

helps to promote accurate pricing and 

helps to reduce the susceptibility of the 

contract to manipulation. 

1. Quality Standards 

The Commission preliminarily 

believes that a DCM should consider the 

following VCC commodity 

characteristics when addressing quality 

standards in the development of the 

terms and conditions of a VCC 

derivative contract: (i) transparency, (ii) 

additionality, (iii) permanence and risk 

of reversal, and (iv) robust 

quantification.73

a. Transparency—Publicly Available 

Data to Promote Transparency 

As a threshold matter, the 

Commission believes that a DCM should 

provide, in the terms and conditions of 

a VCC derivative contract, information 

about the VCCs that are eligible for 

delivery under the contract. The 

contract terms and conditions should 

include information that readily 

specifies the crediting program or 

programs—and, as applicable, the 

specific types of projects or activities— 

from which VCCs that are eligible for 

delivery under the contract may be 

issued. Specifying which crediting 

programs, and as applicable, which 

types of projects or activities, are 

eligible for purposes of delivery will 

help to provide clarity to market 

participants regarding the VCCs that can 

be expected to deliver under the 

contract, and will thereby help to ensure 

that the pricing of the contract 

accurately reflects the intended quality 

of the underlying VCCs. Where there is 

ambiguity or confusion about the 

quality of the VCCs that may be 

delivered under the contract, this may 

render the contract susceptible to 

manipulation or price distortion. 

The Commission preliminarily 

believes that, in developing the terms 

and conditions of a VCC derivative 

contract, DCMs should also consider 

whether the crediting program for the 

underlying VCCs is making detailed 

information about the crediting 

program’s policies and procedures and 

the projects or activities that it credits, 

such as relevant project documentation, 

publicly available in a searchable and 

comparable manner. Making such 

information publicly available would 

assist market participants in 

understanding how GHG emission 

reductions or removals are calculated by 

the crediting program—including how 

additionality, which is discussed further 

below, is assessed—and how GHG 

emission reductions or removals are 

quantified. This would assist market 

participants in making informed 

evaluations, and comparisons, of the 

quality of the VCCs that underlie 

derivative contracts, which would help 

to support accurate pricing. 

Accordingly, information regarding the 

crediting program’s policies and 

procedures for making program 

information publicly available may 

constitute an economically significant 

attribute of the underlying VCC that 

should be described or defined in the 

terms and conditions of the VCC 

derivative contract. 

b. Additionality—The Underlying VCC 

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 

The Commission preliminarily 

believes that, in developing the terms 

and conditions of a VCC derivative 

contract, a DCM should consider 

whether the underlying VCCs represent 

GHG emission reductions or removals 

that are ‘‘additional’’—in other words, 

whether the VCCs are credited only for 

projects or activities that result in 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.74 Additionality is viewed by 

many as a necessary element of a high 

quality VCC: if a VCC does not represent 

emission reductions or removals that 

would not have occurred in the absence 

of the added monetary incentive created 

by the revenue from the sale of carbon 

credits, then the VCC will not serve a 

market participant’s goals of 

contributing to emissions mitigation. 

Accordingly, as part of its contract 

design market research, a DCM should 

consider whether a crediting program 

can demonstrate that it has procedures 

in place to assess or test for 

additionality. A DCM should consider 

whether those procedures are 

sufficiently rigorous and reliable to 

provide a reasonable assurance that 

GHG emission reductions or removals 

are credited only if they are additional. 

If holders of positions in a VCC 

derivative contract understand and 

intend for VCCs that are eligible for 

delivery under the contract to be 

additional, but in fact they may not be, 

then the pricing of the contract may not 

accurately reflect the quality of the 

VCCs that may be delivered under the 

contract: the cheapest-to-deliver VCC,75

that otherwise meets the contract’s 

specifications, may not have 

additionality. 

Given that additionality is viewed by 

many as a necessary element of a high 

quality VCC, information regarding a 

crediting program’s procedures for 

assessing or testing for additionality 

may constitute an economically 

significant attribute of the underlying 

VCCs, which should be described or 

defined in the terms and conditions of 

a VCC derivative contract. 

c. Permanence and Accounting for the 

Risk of Reversal 

The Commission preliminarily 

believes that, in developing the terms 

and conditions of a VCC derivative 

contract, a DCM should consider 

whether the crediting program for the 

underlying VCCs can demonstrate that it 

has measures in place to address and 

account for the risk of reversal (i.e., the 

risk that VCCs issued for a project or 

activity may have to be recalled or 

cancelled due to carbon removed by the 

project or activity being released back 

into the atmosphere, or due to a 

reevaluation of the amount of carbon 

reduced or removed from the 

atmosphere by the project or activity). 

Understanding and evaluating the 

measures that a crediting program has in 

place to address and account for the risk 

of reversal may be particularly 

important where the underlying VCCs 

are issued for project or activity types 

with a higher reversal risk. 

The risk of reversal may impact the 

risk management needs of VCC 

derivative market participants. Market 

participants that are utilizing 

physically-settled VCC derivative 

contracts to help meet their carbon 

mitigation goals have an interest in 

ensuring that, upon physical settlement, 

the underlying VCCs will actually 

reduce or remove the amount of 

emissions that they were intended to 


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76Related specifically to the agriculture and forest 

sector, the U.S. Department of Agriculture’s Office 

of the Chief Economist has published a Request for 

Information on the Federal Strategy to Advance 

Measurement and Monitoring Greenhouse Gas 

Measurement and Monitoring for the Agriculture 

and Forest Sectors. This Request for Information 

was issued on behalf of the Administration’s 

Greenhouse Gas Monitoring and Measurement 

Interagency Working Group (‘‘GHG IWG’’). See, 88 

FR 44251 (July 12, 2023). 

77CEA section 5(d)(5), 7 U.S.C. 7(d)(5). See also 

17 CFR 38.300–301. 

78 Guidance on estimating deliverable supply can 

be found in the Appendix C Guidance. 

79For a cash-settled VCC derivative contract, a 

DCM may similarly consider the deliverable supply 

of the underlying VCCs when setting exchange-set 

speculative position limits or historical open 

interest when establishing non-spot month position 

accountability levels. See, 17 CFR 150.5 and 

Appendix F to Part 150, Title 17. 

80Appendix C Guidance, paragraph (b)(2)(i)(B). 

81While cash-settled VCC derivative contracts do 

not result in the delivery of a VCC, the Commission 

preliminarily believes that considering the VCC 

commodity characteristics of governance, tracking 

and no double-counting when developing the terms 

and conditions of a cash-settled VCC derivative 

contract will help to ensure that the contract terms 

and conditions address essential economic 

characteristics of the underlying VCC in a manner 

that promotes accurate pricing and helps to reduce 

the susceptibility of the contract to manipulation. 

reduce or remove. Accordingly, the risk 

of reversal—and the manner in which it 

is accounted for by a crediting 

program—is tied to the quality of the 

underlying VCCs and, by extension, to 

the pricing of the derivative contract. As 

a result, information regarding a 

crediting program’s measures for 

estimating, monitoring, and addressing 

the risk of reversal may constitute an 

economically significant attribute of the 

underlying VCCs that should be 

described or defined in the terms and 

conditions of a VCC derivative contract. 

As part of its contract design market 

research, the Commission preliminarily 

believes that a DCM should consider 

whether the crediting program for a VCC 

has measures in place that provide 

reasonable assurance that, in the event 

of a reversal, the VCC will be replaced 

by a VCC of comparably high quality 

that meets the contemplated 

specifications of the contract. Most 

crediting programs have established 

VCC ‘‘buffer reserves’’ to address the 

risk of credited GHG emission 

reductions or removals being reversed. 

Under this approach, VCCs are set aside 

into a common buffer reserve (or 

‘‘pool’’). Reserved VCCs can be drawn 

upon to compensate for reversals 

associated with a project or activity. If 

a reversal occurs, VCCs are drawn upon 

from the buffer reserve to replace VCCs 

that are canceled, proportional to the 

size of the reversal. 

A DCM should consider whether a 

crediting program has a buffer reserve or 

other measures in place that provide 

reasonable assurance that, in the event 

of a reversal, the VCCs intended to 

underlie the derivative contract would 

be replaced by VCCs of comparable high 

quality that meets the contemplated 

specifications of the contract. The DCM 

could also consider whether the 

crediting program regularly reviews the 

methodology by which the size of its 

buffer pool is calculated in order to 

address evolving climate risks that may 

heighten the risk of reversal, and 

whether there is a mechanism in place 

to audit the continuing sufficiency of 

the buffer pool. 

d. Robust Quantification—GHG 

Emission Reductions or Removals 

Should be Conservatively Quantified 

The Commission preliminarily 

believes that, as part of its contract 

design market research, a DCM should 

consider the methodology or protocol 

used by a crediting program to calculate 

the level of GHG emission reductions or 

removals associated with credited 

projects or activities. Given the current 

absence of a standardized methodology 

or protocol to quantify GHG emission 

reduction or removal levels 76—not only 

across crediting programs, but even by 

a particular crediting program, with 

respect to different types of projects or 

activities—the Commission believes that 

a DCM that lists a VCC derivative 

contract should consider whether the 

crediting program for the underlying 

VCCs can demonstrate that the 

quantification methodology or protocol 

that it uses to calculate emission 

reductions or removals for the 

underlying VCCs is robust, conservative, 

and transparent. A robust, conservative, 

and transparent quantification 

methodology or protocol helps to ensure 

that the number of VCCs that are issued 

for a project or activity accurately 

reflects the level of GHG emission 

reductions or removals associated with 

the project or activity. Accordingly, 

information about the quantification 

methodology or protocol used by the 

crediting program to calculate GHG 

emission reductions or removals for 

projects or activities associated with the 

underlying VCCs may constitute an 

economically significant attribute of the 

underlying VCCs that should be 

described or defined in the terms and 

conditions of a VCC derivative contract. 

For the derivative contracts that they 

list, DCMs are required to adopt, as is 

necessary and appropriate, exchange-set 

position limits for speculators.77 To 

establish exchange-set position limits, a 

DCM should derive a quantitative 

estimate of the deliverable supplies of 

the underlying commodity for the 

delivery period specified in the 

contract.78 A DCM’s estimate of a VCC’s 

deliverable supplies is likely to be 

informed by understanding how the 

relevant crediting program determines 

the amount of VCCs that are issued for 

credited projects or activities. Where the 

quantification methodology or protocol 

used to calculate the amount of VCCs is 

robust, conservative, and transparent, 

the DCM should have a more reliable 

basis from which to form its deliverable 

supply estimate. That deliverable 

supply estimate, in turn, can be used as 

the basis for effectively setting the 

DCM’s exchange-set speculative 

position limits to help reduce the 

possibility of corners or squeezes that 

may distort or manipulate the price of 

the derivative contract.79

2. Delivery Points and Facilities 

The Appendix C Guidance states that 

the delivery procedures for a physicallysettled derivative contract should, 

among other things, seek to minimize or 

eliminate any impediments to making or 

taking delivery by both deliverers and 

takers of delivery, to help ensure 

convergence of cash and derivative 

contract prices at the expiration of the 

derivative contract.80 When addressing 

delivery procedures for a physicallysettled VCC derivative contract, the 

Commission preliminarily believes that 

a DCM should consider the governance 

framework and tracking mechanisms of 

the crediting program for the underlying 

VCCs, as well as the crediting program’s 

measures to prevent double-counting.81

a. Governance 

The Commission preliminarily 

believes that a DCM should consider 

whether the crediting program for the 

underlying VCCs can demonstrate that it 

has a governance framework that 

effectively supports the crediting 

program’s independence, transparency 

and accountability. As a threshold 

matter, a governance framework that 

effectively supports transparency and 

accountability helps to ensure the 

overall quality of the VCCs issued by a 

crediting program. Furthermore, it is the 

Commission’s understanding that a 

crediting program’s registry may be used 

as a delivery point to facilitate physical 

settlement for a VCC derivative contract. 

As discussed above, a registry is a 

repository for tracking mitigation 

projects or activities and associated 

VCCs. An effective crediting program 

governance framework can help to 

ensure that the crediting program 

operates or makes use of a registry that 

has appropriate measures in place to 


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82Appendix C Guidance, paragraph (b)(2)(i)(G) 

(To the extent that formal inspection procedures are 

not used in the cash market, an acceptable 

specification would contain provisions that assure 

accuracy in assessing the commodity, that are 

available at a low cost, that do not pose an obstacle 

to delivery on the contract and that are performed 

by reputable, disinterested third-party or by 

qualified designated contract market employees.). 

83 Id. 

84CEA Section 5(d)(4), 7 U.S.C. 7(d)(4). See also 

17 CFR 38.250–258. 

85 17 CFR 38.252. 

facilitate the physical settlement of a 

VCC derivative contract. 

In reviewing a crediting program’s 

governance framework, the Commission 

preliminarily believes that a DCM 

should consider, among other things, 

the program’s decision-making 

procedures, including who is 

responsible for administration of the 

program and how the independence of 

key functions is ensured; reporting and 

disclosure procedures; public and 

stakeholder engagement processes; and 

risk management policies, such as 

financial resources/reserves, cybersecurity, and anti-money laundering 

policies. The DCM also should consider 

whether information regarding these 

procedures and policies is made 

publicly available. 

Given the importance of a crediting 

program’s governance framework in 

ensuring the overall quality of the VCCs 

issued by the program, as well as the 

potential importance of a crediting 

program’s registry in facilitating 

delivery, it may be appropriate for the 

DCM to include information about the 

crediting program’s governance 

framework in the terms and conditions 

of a physically-settled VCC derivative 

contract. 

b. Tracking 

The Commission preliminarily 

believes that a DCM should consider 

whether the crediting program for the 

underlying VCCs can demonstrate that it 

has processes and procedures in place 

to help ensure clarity and certainty with 

respect to the issuance, transfer, and 

retirement of VCCs. The DCM should 

consider whether the crediting program 

operates or makes use of a registry that 

has measures in place to effectively 

track the issuance, transfer, and 

retirement of VCCs; to identify who 

owns or retires a VCC; and to make sure 

that each VCC is uniquely and securely 

identified and associated with a single 

emission reduction or removal of one 

metric ton of carbon dioxide equivalent. 

In circumstances where the registry will 

serve as the delivery point for a 

physically-settled VCC derivative 

contract, it may be appropriate for the 

DCM to include as a condition of the 

contract that the registry have such 

measures to address tracking in place, as 

well as effective measures to address 

double-counting, as discussed below. 

c. No Double Counting 

The Commission preliminarily 

believes that a DCM should consider 

whether the crediting program for the 

underlying VCCs can demonstrate that it 

has effective measures in place that 

provide reasonable assurance that 

credited emission reductions or 

removals are not double counted. That 

is, that the VCCs representing the 

credited emission reductions or 

removals are issued to only one registry 

and cannot be used after retirement or 

cancelation. As discussed above in 

connection with the VCC commodity 

characteristics of additionality and 

permanence, market participants that 

are utilizing physically-settled VCC 

derivative contracts to help meet carbon 

mitigation goals have an interest in 

ensuring that, upon physical settlement, 

the underlying VCCs will actually 

reduce or remove the emissions that 

they were intended to reduce or remove. 

In order for VCCs to effectively further 

carbon mitigation goals, it is important 

for each credited VCC to be uniquely 

associated with a single emission 

reduction or removal of one metric ton 

of carbon dioxide equivalent—and a 

crediting program should have effective 

measures in place that provide 

reasonable assurance of this. If there is 

not a reasonable assurance that the 

VCCs underlying a derivative contract 

are each unique, then, among other 

things, this could distort or obscure the 

accuracy of the derivative contract’s 

pricing. 

In the context of evolving national 

and international carbon markets and 

emissions trading frameworks, effective 

measures to ensure that emission 

reductions or removals are not double 

counted may include, among other 

things, procedures for conducting crosschecks across multiple carbon credit 

registries. 

3. Inspection Provisions—Third-Party 

Validation and Verification 

Consistent with the Appendix C 

Guidance, the Commission believes that 

any inspection or certification 

procedures for verifying compliance 

with quality requirements or any other 

related delivery requirements for 

physically-settled VCC derivatives 

contracts should be specified in the 

contract’s terms and conditions.82 The 

Commission believes that these 

inspection or certification procedures 

should be consistent with the latest 

procedures in the voluntary carbon 

markets. To that end, the Commission 

preliminarily believes that the DCM 

should consider, among other things, 

how the crediting program for the 

underlying VCCs requires validation 

and verification that credited mitigation 

projects or activities meet the crediting 

program’s rules and standards. 

The Commission preliminarily 

believes that, when designing a VCC 

derivative contract, a DCM should 

consider whether the crediting program 

has up-to-date, robust and transparent 

validation and verification procedures, 

including whether those procedures 

contemplate validation and verification 

by a reputable, disinterested party or 

body. By providing independent 

confirmation that mitigation projects or 

activities are achieving the claimed 

GHG emission reductions or removals, 

third-party validation and verification 

can help to ensure that the underlying 

VCC accurately reflects the quality 

intended by the DCM and supports 

voluntary carbon market integrity.83

A DCM should consider whether the 

crediting program is employing best 

practices with respect to third-party 

validation and verification, which may 

include conducting reviews of the 

performance of validators, procedures 

for remediating performance issues, not 

using the same third party validator to 

verify every project type or project 

category, and using a separate third 

party to conduct ongoing validation and 

verification from the third party that 

completed the initial validation and 

verification process. 

B. A DCM Shall Monitor a Derivative 

Contract’s Terms and Conditions as 

They Relate to the Underlying 

Commodity Market 

DCM Core Principle 4 requires a DCM 

to prevent manipulation, price 

distortion, and disruptions of the 

physical delivery or cash-settlement 

process through market surveillance, 

compliance, and enforcement practices 

and procedures.84 For physically-settled 

derivative contracts, the Commission 

has recognized DCM Core Principle 4 to 

include, among other things, an 

obligation to monitor the contract’s 

terms and conditions as they relate the 

underlying commodity market, and to 

the convergence between the contract 

price and the price of the underlying 

commodity, and to monitor the supply 

of the underlying commodity in light of 

the contract’s delivery requirements.85

Such monitoring will help a DCM 

identify circumstances that may cause 

the contract to become susceptible to 

price manipulation or distortions, and 


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86The Commission has, similarly, recognized that 

a DCM has a responsibility to monitor the 

continued appropriateness of the terms and 

conditions of a cash-settled derivative contract. See, 

e.g., 17 CFR 38.253(a)(2). 

87 17 CFR 38.254(a). 

88 Id. 

89SEFs also may generally list new contracts by 

way of either of these two processes. See, generally, 

CEA section 5c(c), 7 U.S.C. 7a–2(c). 

90CEA section 5c(c)(1), 7 U.S.C. 7a–2(c)(1). See 

also 17 CFR 40.2 The Commission must receive the 

DCM’s self-certified submission at least one 

business day before the contract’s listing. 17 CFR 

40.2(a)(2). 

91CEA sections 5c(c)(4)–(5), 7 U.S.C. 7a–2(c)(4)– 

(5). See also 17 CFR 40.3. 

92 17 CFR 40.2–40.3. 

93 17 CFR 40.5–40.6. 

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 selfcertified 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 to provide a more detailed explanation and 

analysis of contracts that are submitted for 

affirmative Commission approval. 

95 17 CFR 40.2(a)(3)(v) (for self-certification) and 

40.3(a)(4) (for Commission approval). 

96 17 CFR 40.2(b) (for self-certification) and 

40.3(a)(10) (for Commission approval). 

to assess whether the terms and 

conditions of the contract continue to be 

appropriate—or whether a change in 

circumstances should be addressed, for 

example, through changes to the 

contract’s terms and conditions.86

Given that VCC derivatives are a 

comparatively new and evolving class of 

products, and given that standardization 

and accountability mechanisms for 

VCCs are still being developed, the 

Commission preliminarily believes that 

the monitoring by a DCM of the terms 

and conditions of a physically-settled 

VCC derivative contract should include 

continual monitoring of the 

appropriateness of the contract’s terms 

and conditions that includes, among 

other things, monitoring to ensure that 

the delivery instrument—that is, the 

underlying VCC—conforms or, where 

appropriate, updates to reflect the latest 

certification standard(s) applicable for 

that VCC. For example, where there are 

changes to either the crediting program 

or the types of projects or activities 

associated with the underlying VCC, 

due for example to new standards or 

certifications, then the DCM should 

amend the contract’s terms and 

conditions to reflect this update. In such 

circumstances, the DCM should also 

ensure that it is monitoring the 

adequacy of the estimated deliverable 

supply of the underlying VCC to satisfy 

the contract’s delivery requirements. 

Finally, the Commission reminds 

market participants that Commission 

regulations implementing DCM Core 

Principle 4 require DCMs to have rules 

requiring their market participants to 

keep records of their trading that 

include records of their activity in the 

underlying commodity and related 

derivatives markets.87 A DCM’s rules 

also must require market participants to 

make such records available upon 

request to the DCM.88 As such, DCM 

market participants are required, upon 

request, to make records of their trading 

in underlying VCC cash markets 

available to the DCM, in order to assist 

the DCM in fulfilling its market 

monitoring obligations. These records 

also are subject to Commission 

inspection under applicable 

Commission recordkeeping rules. 

C. A DCM Must Satisfy the Product 

Submission Requirements Under Part 40 

of the CFTC’s Regulations and CEA 

Section 5c(c) 

There are generally two processes by 

which a DCM may list a new derivative 

contract for trading.89 The DCM may 

elect to list the contract for trading by 

providing the Commission with a 

written certification—a ‘‘selfcertification’’—that the contract 

complies with the CEA, including the 

CFTC’s regulations thereunder.90

Alternatively, the DCM may elect 

voluntarily to seek prior Commission 

approval of the contract.91 In each case, 

the DCM must submit prescribed 

information to the Commission, 

including but not limited to the 

contract’s terms and conditions.92

Amendments to an existing derivative 

contract also must be submitted to the 

Commission, along with prescribed 

information, either by way of selfcertification or for prior Commission 

approval.93

This proposed guidance highlights 

three submission requirements in 

connection with the listing of VCC 

derivative contracts. These requirements 

apply regardless of whether a DCM 

elects to list the contract by way of selfcertification, or with prior Commission 

approval. These requirements generally 

apply with respect to the listing by a 

DCM of a derivative contract, regardless 

of the underlying asset class. However, 

the Commission wishes to remind 

DCMs of the importance of fully 

complying with these requirements in a 

submission for a VCC derivative 

contract. 

The relevant requirements provide, 

first, that a contract submission to the 

Commission must include an 

explanation and analysis of the contract 

and its compliance with applicable 

provisions of the CEA, including core 

principles and the Commission’s 

regulations thereunder.94 Second, the 

relevant requirements provide that the 

explanation and analysis of the contract 

either be accompanied by the 

documentation relied upon to establish 

the basis for compliance with applicable 

law, or incorporate information 

contained in such documentation, with 

appropriate citations to data sources.95

Third, the relevant requirements 

provide that, if requested by 

Commission staff, a DCM must provide 

any additional evidence, information or 

data that demonstrates that the contract 

meets, initially or on a continuing basis, 

the requirements of the CEA or the 

Commission’s regulations or policies 

thereunder.96

Since VCC derivatives are a 

comparatively new and evolving class of 

products, and since standardization and 

accountability mechanisms for VCCs are 

still being developed, the Commission 

anticipates that in connection with the 

submission for a VCC derivative 

contract, a DCM may provide qualitative 

explanations and analysis to assist in 

addressing the three above-described 

requirements. The Commission expects 

that the information—including 

supporting documentation, evidence 

and data—provided by the DCM to 

describe how the contract mcomplies 

with the CEA and applicable 

Commission regulations, will be 

complete and thorough. Given unique 

and developing aspects of VCCs and 

VCC derivative markets, including 

complete and thorough information in a 

submission for a VCC derivative 

contract will assist the Commission and 

its staff in their understanding of the 

contract and their analysis of the 

contact’s compliance with applicable 

statutory and regulatory requirements, 

including whether or not the contract is 

readily susceptible to manipulation. 

III. Request for Comment 

The Commission requests comment 

from the public on all aspects of the 

Commission’s proposed guidance 

regarding the listing of VCC derivative 

contracts, and further invites comments 

on specific questions related to the 

listing of such contracts. The 

Commission encourages all comments 

including background information, 

actual market examples, and best 

practice principles. Specifically, the 

Commission requests comment on the 

following questions: 


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General 

1. In addition to the VCC commodity 

characteristics identified in this 

proposed guidance, are there other 

characteristics informing the integrity of 

carbon credits that are relevant to the 

listing of VCC derivative contracts? Are 

there VCC commodity characteristics 

identified in this proposed guidance 

that are not relevant to the listing of 

VCC derivative contracts, and if so, why 

not? 

2. Are there standards for VCCs 

recognized by private sector or 

multilateral initiatives that a DCM 

should incorporate into the terms and 

conditions of a VCC derivative contract, 

to ensure the underlying VCCs meet or 

exceed certain attributes expected for a 

high-integrity carbon credit? 

3. In addition to the criteria and 

factors discussed in this proposed 

guidance, are there particular criteria or 

factors that a DCM should consider in 

connection with monitoring the 

continual appropriateness of the terms 

and conditions of a VCC derivative 

contract? 

4. In addition to the criteria and 

factors discussed in this proposed 

guidance, are there particular criteria or 

factors that a DCM should consider, 

which may inform its analysis of 

whether or not a VCC derivative 

contract would be readily susceptible to 

manipulation? 

5. Should the VCC commodity 

characteristics that are identified in this 

proposed guidance as being relevant to 

the listing by a DCM of VCC derivative 

contracts, also be recognized as being 

relevant to submissions with respect to 

VCC derivative contracts made by a 

registered foreign board of trade under 

CFTC regulation 48.10? 

Transparency 

6. Is there particular information that 

DCMs should take into account when 

considering, and/or addressing in a VCC 

derivative contract’s terms and 

conditions, whether a crediting program 

is providing sufficient access to 

information about the projects or 

activities that it credits? Are there 

particular criteria or factors that a DCM 

should take into account when 

considering, and/or addressing in a 

contract’s terms and conditions, 

whether there is sufficient transparency 

about credited projects or activities? 

Additionality 

7. Are there particular criteria or 

factors that DCMs should take into 

account when considering, and/or 

addressing in a VCC derivative 

contract’s terms and conditions, 

whether the procedures that a crediting 

program has in place to assess or test for 

additionality provide a reasonable 

assurance that GHG emission reductions 

or removals will be credited only if they 

are additional? 

8. In this proposed guidance, the 

Commission recognizes VCCs as 

additional where they are credited for 

projects or activities that would not 

have been developed and implemented 

in the absence of the added monetary 

incentive created by the revenue from 

carbon credits. Is this the appropriate 

way to characterize additionality for 

purposes of this guidance, or would 

another characterization be more 

appropriate? For example, should 

additionality be recognized as the 

reduction or removal of GHG emissions 

resulting from projects or activities that 

are not already required by law, 

regulation, or any other legally binding 

mandate applicable in the project’s or 

activity’s jurisdiction? 

Risk of Reversal 

9. Are there particular criteria or 

factors that DCMs should take into 

account when considering, and/or 

addressing in a VCC derivative 

contract’s terms and conditions, a 

crediting program’s measures to avoid 

or mitigate the risk of reversal, 

particularly where the underlying VCC 

is sourced from nature-based projects or 

activities such as agriculture, forestry or 

other land use initiatives? 

10. How should DCMs treat contracts 

where the underlying VCC relates to a 

project or activity whose underlying 

GHG emission reductions or removals 

are subject to reversal? Are there terms, 

conditions or other rules that a DCM 

should consider including in a VCC 

derivative contract in order to account 

for the risk of reversal? 

Robust Quantification 

11. Are there particular criteria or 

factors that a DCM should take into 

account when considering, and/or 

addressing in a contract’s terms and 

conditions, whether a crediting program 

applies a quantification methodology or 

protocol for calculating the level of GHG 

reductions or removals associated with 

credited projects or activities that is 

robust, conservative and transparent? 

Governance 

12. In addition to a crediting 

program’s decision-making, reporting, 

disclosure, public and stakeholder 

engagement, and risk management 

policies, are there other criteria or 

factors that a DCM should take into 

account when considering, and/or 

addressing in a VCC derivative 

contract’s terms and conditions, 

whether the crediting program can 

demonstrate that it has a governance 

framework that effectively supports the 

program’s transparency and 

accountability? 

Tracking and No Double Counting 

13. In addition to the factors 

identified in this proposed guidance, are 

there other factors that should be taken 

into account by a DCM when 

considering, and/or addressing in a VCC 

derivative contract’s terms and 

conditions, whether the registry 

operated or utilized by a crediting 

program has processes and procedures 

in place to help ensure clarity and 

certainty with respect to the issuance, 

transfer, and retirement of VCCs? 

14. Are there particular criteria or 

factors that a DCM should take into 

account when considering, and/or 

addressing in a VCC derivative 

contract’s terms and conditions, 

whether it can be demonstrated that the 

registry operated or utilized by a 

crediting program has in place measures 

that provide reasonable assurance that 

credited emission reductions or 

removals are not double-counted? 

Inspection Provisions 

15. Should the delivery procedures 

for a physically-settled VCC derivative 

contract describe the responsibilities of 

registries, crediting programs, or any 

other third-parties required to carry out 

the delivery process? 

Sustainable Development Benefits and 

Safeguards 

16. Certain private sector and 

multilateral initiatives recognize the 

implementation by a crediting program 

of measures to help ensure that credited 

mitigation projects or activities meet or 

exceed best practices on social and 

environmental safeguards, as a 

characteristic that helps to inform the 

integrity of VCCs issued by the crediting 

program. When designing a VCC 

derivative contract, should a DCM 

consider whether a crediting program 

has implemented such measures? 

17. 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 issued by the crediting 

program. When designing a VCC 

derivative contract, should a DCM 


ddrumheller on DSK120RN23PROD with NOTICES1
89422 Federal Register / Vol. 88, No. 247 / Wednesday, December 27, 2023 / Notices 

1Managing Climate Risk in the U.S. Financial 

System, Sept. 9, 2020, https://www.cftc.gov/sites/ 

default/files/2020-09/9-9- 

20%20Report%20of%20the%20

Subcommittee%20on%20ClimateRelated%20Market%20Risk%20- 

%20Managing%20Climate%20Risk%20in%20the

%20U.S.%20Financial%20

System%20for%20posting.pdf. 

2CFTC Acting Chairman Behnam Establishes 

New Climate Risk Unit, Mar. 17, 2021, https://

www.cftc.gov/PressRoom/PressReleases/8368-21. 

3CFTC, Event: Commission Meetings, CFTC 

Announces Voluntary Carbon Markets Convening 

(Jun. 2, 2022), https://www.cftc.gov/PressRoom/ 

Events/opaeventcftccarbonmarketconvene060222; 

and CFTC, Event: Commission Meetings, CFTC 

Announces Second Voluntary Carbon Markets 

Convening, (July 19, 2023), https://www.cftc.gov/ 

PressRoom/Events/opaeventvoluntarycarbon

markets071923. 

4Request for Information on Climate-Related 

Financial Risk, 87 FR 34856 (Jun. 8, 2022), available 

at https://www.cftc.gov/sites/default/files/2022/06/ 

2022-12302a.pdf. 

5See, e.g., Rostin Behnam, Chairman, CFTC, 

Testimony by Chairman Rostin Behnam Before the 

Subcommittee on Agriculture, Rural Development, 

Food and Drug Administration and Related 

Agencies Committee on Appropriations, U.S. House 

of Representatives (Mar. 28, 2023), https://

www.cftc.gov/PressRoom/SpeechesTestimony/ 

opabehnam35; Rostin Behnam, CFTC, Testimony of 

Commissioner Rostin Behnam before the House 

Select Committee on the Climate Crisis (Oct. 1, 

2020), https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/opabehnam16. 

consider whether a crediting program 

has implemented such measures? 

Issued in Washington, DC, on December 

21, 2023, by the Commission. 

Christopher Kirkpatrick, 

Secretary of the Commission. 

NOTE: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Commission Guidance 

Regarding the Listing of Voluntary 

Carbon Credit Derivative Contracts; 

Request for Comment—Voting 

Summary and Chairman’s and 

Commissioners’ Statements 

Appendix 1—Voting Summary 

On this matter, Chairman Behnam 

and Commissioners Johnson, Goldsmith 

Romero, and Pham voted in the 

affirmative. Commissioner Mersinger 

voted to concur. No Commissioner 

voted in the negative. 

Appendix 2—Statement of Support of 

Chairman Rostin Behnam 

The CFTC as a market regulator has a 

significant role to play in the voluntary 

carbon markets (VCMs). As we have 

seen the listing of listed futures on 

voluntary carbon credits (VCCs), the 

Agency’s relationship and responsibility 

is real. These markets present an 

opportunity for the agricultural 

economy that historically underpins the 

need for derivatives markets for risk 

management and price discovery, but 

they also provide a useful tool 

throughout the financial markets and 

the real economy. And today, the 

Agency takes the most significant step 

of a financial regulator to promote 

fundamental standards for high integrity 

VCCs. 

Market participants from across all 

asset classes will increasingly turn to 

the derivatives markets as they manage 

the impact of physical and transition 

risks related to extreme weather events 

and climate-related financial risk. The 

CFTC’s role is to ensure that these 

developing derivatives markets, 

including those for VCCs, have integrity, 

adhere to basic market regulatory 

requirements, and remain resilient as 

we most certainly will continue to 

experience extreme and dramatic 

weather events that will impact pricing 

and volatility. 

The Commission’s proposed guidance 

for designated contract markets (DCMs) 

that list derivatives contracts with 

voluntary carbon credits (VCC) as the 

underlying commodity is an important 

step in shaping the development of 

high-integrity voluntary carbon markets. 

For the first time ever, the CFTC is 

proposing regulatory guidance for 

exchanges listing products aimed at 

providing tools to manage risk, promote 

price discovery, and help channel 

capital to support decarbonization. The 

publication of this proposed guidance 

and request for public comment marks 

the culmination of years of work with 

stakeholders such as farmers, foresters, 

end users, energy traders and 

associations, emission-trading focused 

entities, carbon-credit rating agencies, 

crediting programs, CFTC-registered 

exchanges and clearinghouses, and 

derivatives trade associations. This 

proposal also represents a whole-ofgovernment approach in coordination 

with our partners across the federal 

complex. 

Each step has been intentional. My 

sponsorship of the Market Risk 

Advisory Committee’s Climate-Related 

Market Risk Subcommittee, which 

issued a report on Managing Climate 

Risk in the U.S. Financial System 

Report in 2020 identified putting a price 

on carbon as a fundamental element for 

financial markets to efficiently channel 

capital to reduce greenhouse gas 

emissions (GHGs).1 My establishment of 

the CFTC’s Climate Risk Unit in March 

2021 allowed the Commission to build 

its subject matter expertise regarding the 

role that climate-related derivatives will 

have in pricing and managing climaterelated financial risk.2 I hosted two 

VCM Convenings to gather information 

from a wide variety of market 

participants to better understand the 

potential role of the official sector in 

these markets, particularly as we began 

to see the emergence of listed futures 

products that reference VCC cash 

markets.3 The CFTC, with the support of 

my fellow commissioners, issued a 

Request for Information on ClimateRelated Financial Risk that received 80 

comments on ten priority areas of 

interest including VCMs and product 

innovation.4 I have also testified before 

Congress on several occasions 

specifically on the role of financial 

markets in addressing the climate crisis 

and my views on the CFTC’s role in 

supporting solutions.5

The primary takeaway from this 

research and public engagement is clear; 

the Commission should act, consistent 

with its statutory authority under the 

Commodity Exchange Act (CEA), to 

strengthen market integrity, 

transparency, and liquidity for 

derivatives with an underlying VCC that 

are real, additional, permanent, 

verifiable, and represent unique metric 

tons of GHG emissions reduced or 

removed from the atmosphere. 

While VCC derivatives are a 

comparatively new and evolving class of 

products, DCMs must ensure that any 

listed derivatives comply with the CEA 

and Commission regulations. The 

proposed guidance outlines factors that 

DCMs should consider when listing 

products including: DCM Core Principle 

3, which requires DCMs to list only 

contracts that are not readily susceptible 

to manipulation; DCM Core Principle 4, 

which requires DCMs to have the 

capacity and responsibility to prevent 

manipulation, price distortion, and 

other market disruptions through 

market surveillance, compliance, and 

enforcement practices and procedures; 

the Commission’s regulations 

promulgated for these DCM Core 

Principles; and the product submission 

provisions set forth in CEA section 5c(c) 

and Part 40 of the Commission 

regulations. 

The proposed guidance is not 

intended to modify or supersede 

existing statutory or regulatory 

requirements, or existing Commission 

guidance that addresses the DCMs’ 

listing of derivative contracts, such as 

Appendix C to Part 38 of the 

Commission’s regulations. Instead, the 

proposed guidance outlines particular 

VCC commodity characteristics that a 

DCM should consider in the design of 

a VCC futures contract’s terms and 

conditions such (i) quality standards, 

which include transparency, 

additionality, permanence and 

accounting for the risk of reversal, and 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 247 / Wednesday, December 27, 2023 / Notices 89423 

6 International Organization of Securities 

Commissions (IOSCO), CR06/2023 Voluntary 

Carbon Markets, Consultation Report (Dec. 2023), 

https://www.iosco.org/library/pubdocs/pdf/ 

IOSCOPD749.pdf. 

1 Kristin Johnson, Commissioner, CFTC, Keynote 

Address at The Federal Reserve Bank of Dallas: All 

Hat, No Cattle: The Need For Market Structure 

Reforms in the Voluntary Carbon Markets (Nov. 29, 

2023), https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/opajohnson10. In October, the 

United Nations Sustainable Stock Exchanges (UN 

SSE), in collaboration with the International 

Organization of Securities Commissions (IOSCO), 

hosted a roundtable on Carbon Markets at the 8th 

UNCTAD World Investment Forum to engage in 

dialogue on the future of carbon markets and the 

role exchanges and securities market regulators can 

play in making these markets work effectively in 

combating climate change. Sustainable Stock 

Exchanges initiative, Carbon markets action 

framework launched at UNCTAD World Investment 

Forum (Oct. 18, 2023), https://sseinitiative.org/allnews/carbon-markets-action-framework-launchedat-unctad-world-investment-forum/. 

robust quantification of emissions 

reductions or removals; (ii) delivery 

points and facilities which include 

effective governance at the carbon 

crediting program, tracking the 

issuance, transfer, and retirement of 

VCCs, and no double counting; and (iii) 

inspection provisions which includes 

independent third-party validation and 

verification. A DCM’s consideration of 

these factors during the design of a 

derivative product’s terms and 

conditions should promote accurate 

pricing, reduce susceptibility of the 

contract to manipulation, help prevent 

price distortions, and foster confidence 

in the VCC contracts. Consistent with 

the current statutory and regulatory 

requirements, DCMs would retain 

reasonable discretion in establishing the 

manner in which it complies with a 

DCM Core Principles and the 

Commission’s regulations. 

I believe the proposed guidance 

outlines well-researched VCC 

commodity characteristics that build on 

several private sector and multilateral 

initiatives that have made great strides 

to strengthen VCC credit integrity 

standards. I also believe the proposed 

guidance supports transparency, 

liquidity, and market integrity. This 

effort is the product of a strong publicprivate partnership that I have strived to 

achieve with the CFTC’s traditional 

stakeholders as well as those VCM 

stakeholders that may be newer to the 

derivatives markets. 

The Commission is cognizant that the 

derivatives markets are global markets 

and has crafted this proposed guidance 

to be complementary to the important 

work underway by the International 

Organization of Securities Commissions 

(IOSCO) through its Sustainable Finance 

Task Force’s Carbon Market 

Workstream, which I co-chair with 

Verena Ross, the Chair of ESMA. While 

this proposed Commission guidance 

focuses on the due diligence that DCMs 

should undertake when designing and 

monitoring their proprietary listed VCC 

derivative contracts, IOSCO’s work over 

nearly two years is focused on how 

regulators can promote sound market 

structure and enhance financial 

integrity in the VCMs so that highquality carbon credits can be traded in 

an orderly and transparent way. I invite 

our stakeholders to also provide 

comment on IOSCO’s December 2023 

publication of its VCM Consultation 

Report.6

The proposed guidance is not 

intended to suggest that the Commission 

has a role in creating or mandating 

compliance with any kind of climate 

policy. The CFTC’s unique mission 

focused on risk mitigation and price 

discovery, however, puts us on the front 

lines of the now global nexus between 

financial markets and decarbonization 

efforts. Leveraging the CFTC’s personnel 

and expertise demonstrates our 

commitment to taking thoughtful and 

deliberate next steps toward building a 

financial system that provides effective 

tools in achieving emission reductions. 

I thank my fellow commissioners for 

enabling the Commission to publish this 

proposed guidance for public comment. 

I greatly appreciate the expertise and all 

of the hard work done by the staff in my 

office, the Division of Market Oversight, 

and the Office of the General Counsel on 

this proposed guidance. I look forward 

to reviewing the public comments on all 

aspects of the guidance as well as on the 

seventeen specific questions relating to 

the listing for trading of VCC derivative 

contracts. 

Appendix 3—Statement of 

Commissioner Kristin Johnson 

Today, the Commodity Futures 

Trading Commission (Commission or 

CFTC) adopts proposed Guidance and a 

Request for Comments regarding the 

listing of voluntary carbon credit (VCC) 

derivative contracts on designated 

contract markets (DCMs)—boards of 

trade that operate under the regulatory 

oversight of the CFTC (Proposed 

Guidance). I support the Proposed 

Guidance as it advances important 

transparency and market integrity 

efforts. 

However, evidence suggests that 

environmental commodity markets, 

specifically the underlying spot markets 

for carbon credits, are rife with fraud. 

Consequently, I find the Proposed 

Guidance to be necessary, but 

insufficient. I am hopeful that the 

Proposed Guidance ushers in discussion 

and the development of a 

comprehensive regulatory initiative to 

address the deeply concerning, and 

nearly indisputable, proliferation of 

fraud in the carbon credit markets. 

As I noted, in a recent speech at a 

joint convening of the Environmental 

Advisory Council and the Financial 

Sector Advisory Council of the Dallas 

Federal Reserve Bank: 

While the issues and concerns regarding 

climate risks are endemic, complex, and 

inherently require multi-lateral solutions 

effectuated by an international coalition of 

stakeholders—let’s call it: a coalition of the 

willing—I strongly believe that financial 

market regulators and committed market 

participants may play a pivotal role in 

developing and implementing some basic, 

foundational market reforms.1

I anticipate and look forward to the 

public engagement regarding the 

Proposed Guidance and responses to the 

Request for Comments, particularly as 

relates to the efforts of the Proposed 

Guidance to address transparency, 

additionality, risk of reversal, robust 

quantification, governance, tracking and 

double counting, inspection provisions, 

and sustainable development benefits 

and safeguards. In developing a formal 

framework to support the VCC markets, 

I strongly believe that a comprehensive 

approach that addresses the diversity of 

environmental derivatives emerging in 

our markets will improve visibility, 

enhance integrity, and promote carbon 

neutrality. 

The Market for Carbon Credits 

A VCC is a tradeable intangible 

instrument that is issued by a carbon 

crediting program. Once registered, 

VCCs associated with a mitigation 

project or activity may be acquired by 

end users (businesses or individuals) or 

intermediaries who act as brokers. 

While the number of VCC exchanges 

continues to increase, the spot market 

for such products remains largely 

bespoke, with buyers purchasing 

directly from mitigation project 

developers or via intermediaries. A 

carbon credit market creates a forum 

that enables buyers and distributors to 

engage in the purchase and sale, 

respectively, of environmental 

commodities. Each environmental 

commodity represents the acquisition or 

distribution of a credit that contributes 

to the reduction or sequestration 

(capturing and storage) of greenhouse 

gas emissions. Carbon markets are either 

mandatory (compliance) markets or 

voluntary. VCC markets are not 

established by any government 

authority. 

The VCC market serves as an 

important tool, among many needed 


ddrumheller on DSK120RN23PROD with NOTICES1
89424 Federal Register / Vol. 88, No. 247 / Wednesday, December 27, 2023 / Notices 

2Release Number 8234–20, CFTC’s ClimateRelated Risk Subcommittee Releases Report, 

https://www.cftc.gov/PressRoom/PressReleases/ 

8234-20. 

3U.S. Dep’t of the Treasury, The Impact of 

Climate Change on American Household Finances 

1 (2023), https://home.treasury.gov/system/files/ 

136/Climate_Change_Household_Finances.pdf. 

4 Id. 

5Letter from Cory A. Booker, et al., U.S. Senators, 

to Rostin Behnam, Chairman, CFTC (Oct. 13, 2022). 

6Release Number 8736–23, CFTC Division of 

Enforcement Creates Two New Task Forces, https:// 

www.cftc.gov/PressRoom/PressReleases/8736-23. 

7 Kristin Johnson, Commissioner, CFTC, Keynote 

Address at Rice University’s Baker Institute for 

Public Policy Annual Energy Summit: Credibility, 

Integrity, Visibility: The CFTC’s Role in the 

Oversight of Carbon Offset Markets (Oct. 5, 2023), 

https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/opajohnson7; Kristin Johnson, 

Commissioner, CFTC, Keynote Address at The 

Federal Reserve Bank of Atlanta: Policing the 

(Token) Economy: Introducing Corporate 

Governance and Market Structure Reforms in 

Crypto and Environmental Commodities Markets 

(Nov. 13, 2023), https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/opajohnson8; Kristin Johnson, 

Commissioner, CFTC, Keynote Address at The 

Federal Reserve Bank of Dallas: All Hat, No Cattle: 

The Need For Market Structure Reforms in 

Voluntary Carbon Markets (Nov. 29, 2023), https:// 

www.cftc.gov/PressRoom/SpeechesTestimony/ 

opajohnson10. 

8 Kristin Johnson, Commissioner, CFTC, Keynote 

Address at The Federal Reserve Bank of Dallas: All 

Hat, No Cattle: The Need For Market Structure 

Reforms in Voluntary Carbon Markets (Nov. 29, 

2023), https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/opajohnson10. 

9 Id. 

10 17 CFR part 38, Appendix B to Part 38 

(Guidance on, and Acceptable Practices in, 

Compliance With Core Principles), and Appendix C 

to Part 38 (Demonstration of Compliance That a 

Contract Is Not Readily Susceptible to 

Manipulation). 

11For example, NYMEX’s CBL Global 

Environmental Offset futures contracts, and Nodal 

Exchange’s Verified Emission Reduction futures 

and options contracts, are physically-settled 

contracts. If the holder of a position in the contract 

still has an open position at the expiration of 

trading in the contract, then the position holder 

must, in accordance with the rules for delivery set 

forth in the contract, make or take delivery (as 

applicable) of 1,000 VCCs that meet the contract’s 

rules for delivery eligibility. 

tools, designed to address mounting 

evidence of climate change and the 

attendant, significant effects on the 

global economy. Under Chair Behnam’s 

leadership, in 2020, the Climate-Related 

Market Risk Subcommittee of the 

Commission’s Market Risk Advisory 

Committee (an Advisory Committee that 

I currently sponsor), released a report 

identifying actions the Commission 

could take to address climate change 

and finding that climate-related 

financial risks pose a major risk to the 

stability of the U.S. financial system.2

A report by the U.S. Department of 

the Treasury released in September 

explains that ‘‘[t]he impacts of climate 

change are significant and escalating, 

including through more frequent and 

severe weather events, rising sea levels, 

and higher temperatures.’’ 3 The report 

details how climate risks are impacting 

individual household finances, U.S. 

financial markets, and supply chains. 

‘‘In 2022 alone, the cost of climate and 

weather disasters in the United States 

totaled more than $176 billion—the 

third most costly year on record.’’ 4

There are deep and persistent 

concerns regarding the integrity, 

credibility, and lack of visibility in the 

market for carbon credits. Indisputably, 

challenged efforts to establish 

universally-adopted and enforceable 

integrity standards has further stymied 

attempts to scale carbon credit markets. 

Just last fall, U.S. Senators Elizabeth 

Warren, Cory Booker, and Kirsten 

Gillibrand alongside several other 

Senators, encouraged the CFTC to use 

its enforcement jurisdiction aggressively 

to investigate and prosecute fraud and 

manipulation in spot and forward 

environmental commodity markets.5

On June 29, 2023, the Commission 

announced the Environmental Fraud 

Task Force, which was created to 

address misconduct in the regulated 

derivatives markets and to investigate 

fraud in the spot market for VCCs, in 

particular with respect to the purported 

environmental benefits of purchased 

carbon credits, and registrants’ 

misrepresentations regarding purported 

environmental benefits and 

environmental, social, and governance 

(ESG) products or strategies.6

These issues have become so much a 

part of the cultural dialogue that The 

New Yorker featured an article titled 

‘‘The Great Cash-For-Carbon Hustle,’’ 

which detailed the rise and fall of South 

Pole, led by its forty-four-year-old CEO 

Rant Heuberger, and the revelation that 

it sold carbon credits that were not real. 

In recent speeches at the Federal 

Reserve Banks in Atlanta and Dallas and 

Rice University’s Baker Institute for 

Public Policy Annual Energy Summit, I 

outlined the necessity for market 

structure reforms in the VCC markets as 

well as derivatives on VCCs.7 As I have 

previously stated: 

in order for the carbon offset markets to have 

any significance (and, arguably, for such 

markets to avoid extinction), we must ensure 

the integrity of the market.8 Financial market 

regulators and committed market participants 

play a pivotal role in developing and 

implementing some basic, foundational 

market reforms.9

Today’s Proposed Guidance marks a 

step in the right direction. 

Commission Regulatory Authority 

The Proposed Guidance applies to the 

listing of futures with VCCs as the 

underlying assets. DCMs that list and 

offer derivatives on VCCs, which are 

commodities, must be registered with 

the Commission prior to offering such 

contracts. Pursuant to the Commodity 

Exchange Act (CEA), to be designated, 

and maintain a designation, as a 

contract market, a board of trade must 

comply with all core principles and any 

requirement that the Commission may 

impose by rule or regulation. 

Core principle 3 requires a DCM to 

demonstrate that listed contracts are not 

readily subject to manipulation. Core 

principle 4 requires a DCM to prevent 

manipulation, price distortion, and 

disruptions of the physical delivery or 

cash-settlement process through market 

surveillance, compliance, and 

enforcement practices and procedures.10

Guidance and acceptable practices 

provide contextual information 

regarding the core principles and 

detailed examples of how a DCM must 

satisfy a core principle. Additionally, 

DCMs must comply with ‘‘submission 

requirements . . . prior to listing a 

product for trading,’’ including by way 

of self-certification or Commission 

approval of such products. 

The Commission reviews the product 

specifications, including information 

about the underlying asset, as part of 

this review process. 

Futures on VCCs: Great Interest, Limited 

Volume 

Over the last several years, the 

Commission authorized the listing of 

futures contracts on certain 

environmental instruments, including 

mandatory emissions and voluntary 

carbon program instruments. There are 

almost two hundred derivative contracts 

on environmental commodities 

although at this time only three 

contracts have open interest. As of 

November 2023, DCMs submitted 

eighteen futures contracts on voluntary 

carbon market products the Commission 

for listing. Derivative contracts on VCCs 

base their prices on the spot price of 

VCCs,11 and therefore the integrity of 

the underlying spot market is critical to 

the stability of the derivatives market for 

those underlying VCC commodities. 

General Summary of the Proposed 

Guidance 

Endemic fraud in the VCC spot 

market impacts the integrity of 

environmental derivative contracts that 

reference spot market projects. While 

the Commission’s authority to introduce 

regulation is limited to commodity 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 247 / Wednesday, December 27, 2023 / Notices 89425 

12 17 CFR part 37 and Appendix B to Part 37 

(Guidance on, and Acceptable Practices in, 

Compliance with Core Principles). 

13 Kristin Johnson, Commissioner, CFTC, Keynote 

Address at The Federal Reserve Bank of Atlanta: 

Policing the (Token) Economy: Introducing 

Corporate Governance and Market Structure 

Reforms in Crypto and Environmental Commodities 

Markets (Nov. 13, 2023), https://www.cftc.gov/ 

PressRoom/SpeechesTestimony/opajohnson8. 

14For reference, in futures markets, futures 

commission merchants are required to provide 

comprehensive disclosures under CFTC Regulation 

1.55 where all materials risks are specifically are 

addressed. Registered commodity pool operators 

and commodity trading advisors are also required 

to provide disclosures on risks of trading futures 

and swaps. 

15 7 CFR 23.431. This provision requires the 

disclosure of market, credit, liquidity, foreign 

currency, legal, operational, any other applicable 

risks; the material economic terms of the swap, the 

terms relating to the operation of the swap, and the 

rights and obligations of the parties during the term 

of the swap; and the price of the swap, the midmarket mark of the swap, and any compensation or 

other incentive from any source other than the 

counterparty that the swap dealer may receive in 

connection with the swap. 

16Business Conduct Standards for Swap Dealers 

and Major Swap Participants With Counterparties 

Continued 

derivatives, the Commission has broad 

authority to address fraud and market 

manipulation in the spot market. 

The Proposed Guidance outlines 

factors that DCMs should consider when 

addressing certain requirements under 

the CEA and CFTC regulations that are 

relevant to the listing for trading of VCC 

derivative contracts, as previously 

mentioned, without providing a 

qualitative element in terms of 

identifying how the Commission 

expects the DCM to weigh those factors 

to create a certain aspirational goal. 

Specifically: 

• When addressing quality standards 

in the development of the terms and 

conditions of a VCC derivative contract, 

the Proposed Guidance states that a 

DCM should consider transparency, 

additionality, permanency and risk of 

reversal, and robust quantification in 

connection with the underlying VCC. 

The governance framework and tracking 

mechanisms of the crediting program for 

the underlying VCCs and the crediting 

program’s measures to prevent doublecounting are all additional 

considerations. Inspection or 

certification provisions should be 

specified in the terms and conditions. 

• DCMs should actively monitor the 

terms and conditions of VCC derivative 

contracts to ensure conformity with 

current standards and should require 

their market participants to keep records 

of their trading, including activity in the 

underlying spot market, and make such 

records available upon request to the 

DCM. 

• As part of the product review 

process, a DCM is required to submit the 

contract’s terms and conditions and any 

contract amendments and must also 

include an explanation and analysis of 

the contract and its compliance with 

applicable CEA provisions. The 

submitted information—including 

supporting documentation, evidence 

and data—provided by the DCM should 

describe how the contract complies with 

the CEA and applicable Commission 

regulations and should be complete and 

thorough. 

DMO suggests that the Proposed 

Guidance should be considered by a 

swap execution facility (SEF) that 

proposes to trade swaps with VCCs as 

underlying commodities. Similar to 

DCMs, SEFs are directly subject to core 

principles, guidance, acceptable 

practices, and product listing 

requirements.12

The Proposed Guidance may help to 

improve the integrity of the VCC 

markets. Yet, there are additional and 

significant issues that the Proposed 

Guidance does not address. 

On November 13, 2023, I delivered a 

keynote speech at the Federal Reserve 

Bank of Atlanta. During that discussion, 

I noted: 

There are certain principles that must 

guide the development of market structure 

for [VCC markets] including the introduction 

of transaction reporting; secondary market 

regulation including, where relevant, clearing 

and settlement guidance; accountability 

standards for intermediaries to ensure 

integrity and reliability (and in the context of 

environmental commodities additionality); 

business conduct standards, including 

standardized documentation (and 

requirements for certification of 

environmental commodities); and 

appropriate guardrails for any retail market 

participation.13

On November 29, 2023, I delivered 

keynote remarks at a joint convening of 

the Energy Advisory Council and 

Financial Sector Advisory Council of 

the Dallas Federal Reserve Bank. There, 

I outlined additional interventions that 

may mitigate the proliferation of fraud 

in VCC markets and foster innovation 

and competition, while ensuring the 

integrity of our markets. 

The Proposed Guidance provides 

much-needed direction to DCMs (and 

SEFs) to facilitate their compliance with 

core principles when they list futures 

contracts (and swaps contracts) on 

VCCs. However, the Commission is only 

addressing one small aspect of the 

market for derivatives on these 

underlying assets. There is also a 

segment of the swaps market that is not 

traded on a SEF for which VCCs are 

underliers and an even more significant 

volume of environmental forwards that 

are not considered to be swaps. 

The Proposed Guidance suggests the 

potential for a broader and more 

comprehensive framework. Applying 

the approach adopted in the Proposed 

Guidance, there may be several 

interventions that may introduce similar 

needed clarifications—material risk 

disclosures, good faith and fair dealing, 

and clearing. 

A Comprehensive Approach To 

Regulating VCC Markets 

A comprehensive framework 

enhances the integrity of futures and 

OTC markets enabling risk transfer, 

investment, hedging, and price 

discovery. 

Material Risk Disclosures 

The CEA and CFTC regulations 

impose material risk disclosure 

requirements on registered market 

participants in connection with their 

communications, solicitations, and 

negotiations of transactions and material 

contractual terms. 

These material risk disclosure 

requirements reduce information 

asymmetries and improve transparency. 

The requirements obligate certain 

parties to disclose material information 

sufficient to enable counterparties to 

make informed decisions about the 

appropriateness of entering into a 

transaction. 

In the swaps market,14 a swap dealer 

is required to disclose to its non-swap 

dealer counterparty material 

information concerning the swap in a 

manner reasonably designed to allow 

the counterparty to assess the material 

risks, material characteristics, material 

incentives and conflicts of interest that 

the swap dealer may have in connection 

with a particular swap.15

In the adopting release for the 

material risk disclosure requirement, the 

Commission clarified that the material 

risk disclosure requirement reaches 

disclosures regarding the risks 

associated with the economic terms of 

the product and risks associated with 

the underlying asset. The Commission 

noted that: 

The Commission believes that for most 

swaps information about the material risks 

and characteristics of the swap will relate to 

the risks and characteristics of the economic 

terms of the swap. For certain swaps, 

however, where payments or cash-flows are 

materially affected by the performance of an 

underlying asset for which there is not 

publicly available information (or the 

information is not otherwise accessible to the 

counterparty), final § 23.431 would require 

disclosures about the material risks and 

characteristics that affect the value of the 

underlying asset to enable a counterparty to 

assess the material risks of the swap.16


ddrumheller on DSK120RN23PROD with NOTICES1
89426 Federal Register / Vol. 88, No. 247 / Wednesday, December 27, 2023 / Notices 

(Business Conduct Standards), 77 FR 9734, 9760 

(Feb. 17, 2012). 

17 17 CFR 180.1(b) (stating that nothing in that 

section shall be construed to require any person to 

disclose to another person nonpublic information 

that may be material to the market price, rate, or 

level of the commodity transaction, except as 

necessary to make any statement made to the other 

person in or in connection with the transaction not 

misleading in any material respect). 

18 7 CFR 23.433. 

19Business Conduct Standards, 77 FR at 9769. 

20 Id. at 9770. 

21 Id. at 9769. 

22 17 CFR 180.1(a)(2) (providing that it is 

unlawful for any person in connection with any 

contract of sale of any commodity in interstate 

commerce to intentionally or recklessly make, or 

attempt to make, any untrue or misleading 

statement of a material fact or to omit to state a 

material fact necessary in order to make the 

statements made not untrue or misleading). 

23 17 CFR 39.12(b). 

In my view, the concepts of material 

information, material risks, material 

characteristics, material incentives and 

conflicts of interest of a derivative must 

necessarily include the underlying 

commodity on which a derivative is 

priced. In light of the lack of visibility 

into pricing in the VCC markets and the 

dearth of publicly available information 

regarding pricing methodologies, such 

disclosures are particularly important. 

Using the risk disclosure requirement 

as a framework, the Commission should 

provide guidance that applies to all 

environmental derivative products. In 

the context of derivatives on VCCs or 

other environmental products, where 

the risk of loss may be magnified 

because of leverage, the sellers must 

ensure its counterparty has adequate 

information to understand how 

observed volatility and inherent risk in 

the nascent and evolving VCC market 

could impact the price of the derivative. 

For certain forward contracts on 

VCCs, it is possible that no material risk 

disclosure requirement applies; 

however, the CFTC does have 

enforcement jurisdiction if there is 

fraud, including where incorrect or 

misleading information is provided. 

CFTC regulations do not require parties 

to make affirmative statements about 

nonpublic information—but if a party 

does speak, CFTC Regulation 180.1(b) 

specifically requires that a materially 

misleading statement be corrected, 

including nonpublic information that 

may be material to the market price, 

rate, or level of the commodity 

transaction.17

The Commission may not need to 

prescribe the precise language of the 

disclosures. The material risk disclosure 

rule is principles-based. Instead, the 

Commission may identify factors that a 

market participant must consider in a 

risk disclosure, including all the factors 

that could lead to significant losses. 

Information about a carbon credit, 

including information about the 

environmental project and market 

structure, is material because there is a 

substantial likelihood that a reasonable 

counterparty would consider it 

important in making a trading decision. 

Guidance on Good Faith and Fair 

Dealing 

The principles of good faith and fair 

dealing are well-established in the 

futures, swaps and securities industries. 

The National Futures Association’s 

customer communication rule also 

imposes a duty to communicate in a fair 

and balanced manner. 

In the swaps market, the risk 

disclosure requirement is closely linked 

to the swap dealer’s obligation to 

communicate in a fair and balanced 

manner. Swap dealers have a duty to 

communicate with all of their 

counterparties in a fair and balanced 

manner based on principles of fair 

dealing and good faith.18 This duty, the 

Commission notes, ‘‘is designed to 

ensure a balanced treatment of potential 

benefits and risks.’’ 19

In the adopting release for the fair 

dealing requirement, the Commission 

noted: 

In a complex swap, where the risks and 

characteristics associated with an underlying 

asset are not readily discoverable by the 

counterparty upon the exercise of reasonable 

diligence, the swap dealer or major swap 

participant is expected, under both the 

disclosure rule and fair dealing rule, to 

provide a sound basis for the counterparty to 

assess the swap by providing information 

about the risks and characteristics of the 

underlying asset.20

The Commission should offer 

guidance as to its expectations of how 

the fair dealing requirement should be 

considered in the context of an 

underlying asset that is a VCC. The fair 

dealing rule provides an independent 

basis for enforcement proceedings—for 

example where the swap dealer makes 

exaggerated or unwarranted claims, 

opinions, or forecasts in violation of the 

fair dealing requirement.21

Such a requirement may not apply to 

certain forward contracts on VCCs. Yet, 

the Commission maintains broad 

enforcement jurisdiction in the event 

that there is an allegation of fraud, 

including where incorrect or misleading 

information is provided. CFTC 

Regulation 180.1(a)(2) makes unlawful 

the making of an untrue or misleading 

statement of a material fact or omitting 

a material fact necessary to make a 

statement made not untrue or 

misleading.22

Guidance on Product Eligibility for 

Clearing 

In the future, should the market 

evolve and become more standardized, 

the clearing framework may also 

provide valuable risk reduction benefits 

for derivatives on environmental 

commodities. Clearing, by way of 

novation, reduces counterparty credit 

risk because a DCO serves as a seller to 

every buyer and a buyer to every seller, 

remaining neutral. DCOs are highly 

regulated by the Commission, are 

subject to core principles, and have 

significant, mutualized financial 

resources. At settlement, DCOs may 

facilitate the physical delivery of the 

actual underlying commodity or cash 

payments based on the final price of the 

underlying commodity in connection 

with the derivatives contract. 

In the context of environmental 

derivatives, DCOs would facilitate 

delivery of the VCC or determine the 

cash amount based on the price of the 

VCC in the cash market. For purposes of 

physical settlement, a well-functioning 

carbon credit cash market is essential. 

Core principle C sets out product 

eligibility requirements. A DCO must 

have appropriate requirements for 

determining the eligibility of contracts 

submitted to the DCO for clearing, 

taking into account the DCO’s ability to 

manage the risks associated with such 

contracts. 

Some factors the DCO must consider 

include the availability of reliable 

prices, the ability of the DCO and 

clearing members to gain access to the 

relevant market for purposes of creating, 

liquidating, transferring, auctioning, 

and/or allocating positions, and the 

operational capacity of the DCO and 

clearing members to address any unique 

risk characteristics of a product clearing 

members.23 A DCO should take care not 

to clear transactions that present an 

unacceptable level of risk. 

In the context of the current VCC 

market, significant questions arise as to 

whether certain elements of the DCO 

core principles would be easily 

established, including whether there are 

reliable prices for these carbon credits, 

the access to carbon credit markets, and 

whether there is material information 

about the carbon credit. Additional 

Commission guidance perhaps could 

facilitate the market, increase volumes 

and promote sound risk management, 

reasonably-designed policies and 

procedures, and robust rules. 

The development of rules that 

facilitate the clearing of derivatives 


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Federal Register / Vol. 88, No. 247 / Wednesday, December 27, 2023 / Notices 89427 

24 In June 2022, the Commission held the firstever Voluntary Carbon Markets Convening to 

discuss issues related to the supply and demand for 

high quality carbon offsets. Then in July 2023, the 

Commission held the second Voluntary Carbon 

Markets Convening to discuss recent private sector 

initiatives for high quality carbon credits, among 

other topics. 

1The Commission has held two convenings to 

gather information from a range of carbon market 

stakeholders and last year conducted a request for 

information on climate-related risks, which asked 

several questions about carbon markets. The 

Commission received significant comments on 

voluntary carbon credit products and markets. 

2National Oceanic and Atmospheric 

Administration, Topping the charts: September 

2023 was Earth’s warmest September in 174-year 

record (Oct. 13, 2023). 

3See Letter from Senators Booker, Warren, 

Markey, Blumenthal, Sanders, Merkley and 

Gillibrand (Oct. 13, 2022); see also ISDA Comment 

Letter on CFTC Request for Information on ClimateRelated Financial Risk (Oct. 7, 2022) (‘‘We believe 

that the Commission should take a leading role in 

supporting and enhancing the integrity of voluntary 

carbon markets.’’); see also Intercontinental 

Exchange Inc. Comment Letter on CFTC Request for 

Information on Climate-Related Financial Risk (Oct. 

7, 2022) (‘‘ICE supports the Commission taking a 

leadership role in supporting and enhancing the 

integrity of project-based carbon markets.’’); see 

also Environmental Defense Fund Comment Letter 

on CFTC Request for Information on ClimateRelated Financial Risk (Oct. 7, 2022) (‘‘EDF 

respectfully welcomes CFTC’s interest in 

identifying the potential for fraud and market 

manipulation in voluntary carbon markets. 

Enhanced quality and integrity in voluntary carbon 

markets can help mobilize carbon finance, help cut 

emissions and facilitate the achievement of 

corporate and national greenhouse gas reduction 

goals.’’); see also bp Comment Letter on CFTC 

Request for Information on Climate-Related 

Financial Risk (Oct. 7, 2022) (‘‘bp believes the CFTC 

should focus on simultaneously enhancing its 

oversight role in derivatives and futures markets 

while allowing these markets to become deeper and 

more liquid.’’). 

4Commissioner Christy Goldsmith Romero, 

Remarks of Commissioner Christy Goldsmith 

Romero at ISDA’s ESG Forum on Promoting Market 

Resilience: A Thoughtful Approach to the Daunting 

Challenge of Climate Financial Risk, (Mar. 7, 2023); 

See Commissioner Christy Goldsmith Romero, 

Adjusting the Sails for Cyber and Climate Resilience 

(Feb. 10, 2023). 

5 In one relevant example, several press sources 

reported serious allegations about a project 

developed by the market’s largest firm, a project 

that has been among the leading sources of carbon 

credits globally. Blake, Heidi, The Great Cash-forCarbon Hustle, The New Yorker (Oct. 16, 2023); 

Ben Elgin, Alastair Marsh, and Max de Haldevang, 

Faulty Credits Tarnish Billion-Dollar Carbon Offset 

Seller, Bloomberg (Mar. 24, 2023). The allegations 

were sufficiently credible that the project’s registry 

put on hold issuance of credits from the project, 

pending an investigation. Verra Statement on the 

New Yorker Article of October 16, 2023, Verra (Oct. 

17, 2023). 

6See Ceres Comment Letter on CFTC Request for 

Information on Climate-Related Financial Risk (Oct. 

7, 2022). 

based on environmental commodities 

would be greatly advanced by 

Commission guidance on the 

application of those principles to the 

clearing of such products. Forwards on 

carbon credits are not required to be 

cleared at a DCO; but clearing and 

settlement provide critical counterparty 

credit risk management. 

Conclusion 

It is difficult to overstate the 

significance of today’s announced 

Proposed Guidance. Once again, the 

CFTC is demonstrating leadership in the 

novel carbon credit markets and 

contemporaneously enhancing the 

integrity of carbon-credit markets.24

I believe the Commission has taken an 

important step forward by announcing 

the Proposed Guidance advanced today. 

However, I am hopeful that this step is 

the first on a long journey to introduce 

effective market structure reforms in 

VCC markets. 

Appendix 4—Statement of 

Commissioner Christy Goldsmith 

Romero 

I am pleased to support today’s 

proposed guidance regarding the listing 

of voluntary carbon credit derivatives. I 

want to recognize Chairman Behnam’s 

leadership in the voluntary carbon 

credit space. The proposed guidance 

follows efforts by the Commission to 

develop capacity in understanding and 

regulating voluntary carbon credits.1

The physical effects of climate change 

are amplifying. 2023 is likely to go 

down as the warmest year on record.2

The intensifying physical impacts of 

climate change pose serious risks to 

commodities derivatives markets and 

potentially systemic risk to the financial 

system if not effectively managed. Our 

mission includes promoting resilience 

in derivatives markets that can play a 

critical role in managing climate risk. 

Many market participants are seeking 

opportunities in derivatives markets to 

promote resilience to climate risk, 

including through voluntary carbon 

credits. The CFTC oversees voluntary 

carbon credit derivatives listed and 

trading on CFTC-registered exchanges. 

In addition to regulatory authority over 

derivatives, the CFTC also has antifraud 

authority in the spot voluntary carbon 

credit markets given the potential for 

impact to the derivatives markets. 

In response to our public 

consultation, various market 

participants, public interest groups, and 

U.S. Senators have asked the CFTC to 

take a leading role in promoting the 

integrity of voluntary carbon markets.3 I 

was pleased to help launch the CFTC’s 

Environmental Fraud Task Force that 

will pursue individual cases of fraud 

related to carbon credits, weeding out 

bad actors, and promoting market 

integrity.4 Today’s proposed guidance is 

the next step in promoting market 

integrity. 

I have met with exchanges to discuss 

their process for listing these emerging 

products, and found differing 

approaches to these products and due 

diligence in the underlying credit. 

CFTC-registered exchanges have certain 

requirements under the Commodity 

Exchange Act including to list only 

contracts that are not readily susceptible 

to manipulation, to have the capacity 

and responsibility to prevent 

manipulation, price distortion and other 

market disruptions, and other 

requirements aimed at market integrity. 

Commission guidance, like what is 

proposed today, can help exchanges 

understand what compliance means in 

a still rapidly evolving market for 

voluntary carbon credits, one where 

there can be concerns about integrity, 

including for carbon credits listed on 

some of the largest registries,5 a lack of 

transparency, and uncertainty related to 

pricing. These concerns in the spot 

market could affect the regulated 

derivatives market. For a market to work 

well, market participants need to be 

confident they have credible 

information about the product, that 

there are appropriate levels of pricing, 

and that the market has integrity, so that 

they do not face legal, reputational and 

regulatory risks. 

I continue to believe that bringing 

more of this market onto regulated 

exchanges could increase integrity, 

transparency, and bring greater 

confidence to the market. I agree with a 

response to our consultation which said 

that ‘‘the expansion of exchanges 

offering products . . . would help grow 

liquidity and therefore the value of the 

market for price discovery and risk 

shifting.’’ 6 CFTC-regulated exchanges 

have important responsibilities under 

the Commodity Exchange Act, and 

stand as the first line of defense to 

ensure market integrity The market 

should signal through pricing which 

carbon credits are high quality 

compared to credits reflecting projects 

that do not achieve the requisite level of 

one ton of greenhouse gases removed or 

reduced. 

However, one of the biggest 

challenges in voluntary carbon markets 

is fragmentation which different 

projects, registries, and standards, that 

can impact derivatives markets and 

harm market confidence. A lack of 

transparency through consistent, 

comparable data can present challenges 

to proper functioning of markets, 

including price discovery. There are 

important and welcome efforts by 

voluntary bodies like the Integrity 

Council on Voluntary Carbon Markets 

(‘‘ICVCM’’) to create voluntary 


ddrumheller on DSK120RN23PROD with NOTICES1
89428 Federal Register / Vol. 88, No. 247 / Wednesday, December 27, 2023 / Notices 

7Commissioner Christy Goldsmith Romero, 

Remarks of Commissioner Christy Goldsmith 

Romero at ISDA’s ESG Forum on Promoting Market 

Resilience: A Thoughtful Approach to the Daunting 

Challenge of Climate Financial Risk (Mar. 7, 2023). 

8See ISDA Comment Letter on CFTC Request for 

Information on Climate-Related Financial Risk (Oct. 

7, 2022) (‘‘In order for these markets to flourish, 

there can be no room for greenwashing, doublecounting of credits or any other types of fraud and 

manipulation . . .’’); See also EDF Comment Letter 

on CFTC Request for Information on ClimateRelated Financial Risk (Oct. 7, 2022) (‘‘One 

particular concern in carbon markets is that traded 

reductions might be ‘‘double counted,’’ a situation 

in which a single GHG emission reduction or 

removal (i.e. credit) is counted more than once 

towards achieving mitigation targets or goals.’’). 

9See Ceres Comment Letter on CFTC Request for 

Information on Climate-Related Financial Risk (Oct. 

7, 2022) (‘‘The best way to guard against the risk 

of market disruption because of the lack of the 

integrity of the underlying credits would be to 

require all credits underlying derivative 

instruments be subject to a meaningful evaluation 

and certification process by an outside, neutral, and 

expert third party.’’). 

10See Blue Diamond Farming Company 

Comment Letter on CFTC Request for Information 

on Climate-Related Financial Risk (Oct. 7, 2022); 

see also Bryan Agricultural Enterprises Comment 

Letter on CFTC Request for Information on ClimateRelated Financial Risk (Oct. 7, 2022). 

standards to address concerns about 

credibility and to develop a common 

understanding of a high-quality credit, 

efforts that are ongoing. 

In March, I proposed that the 

Commission work with regulated 

exchanges to develop common baseline 

standards for listing voluntary carbon 

credit derivatives.7 At a conference held 

by ISDA, I proposed that the 

Commission consider requiring 

exchanges to take certain actions to 

increase confidence that underlying 

voluntary carbon credits reliably remove 

or avoid the amount of carbon claimed 

of one ton of greenhouse gases per 

credit. I proposed that such actions 

could include information sharing 

agreements with carbon registries and 

baseline standards for carbon credits 

that could reference either the ICVCM 

core carbon principles once they 

became final or the basic principles on 

which they are based. I thank the 

Chairman for working with me on these 

efforts. 

Today’s guidance adapts terminology, 

concepts and standards from the 

ICVCM’s Core Carbon Principles and its 

recently issued Assessment Framework. 

I support the Commission’s recognition 

of the efforts made by this body that 

could improve integrity, transparency, 

and price discovery, and thereby 

improve confidence in these markets. 

The Commission’s guidance adapts 

ICVCM concepts and standards that 

commenters told us were needed for 

integrity in voluntary carbon markets. 

The guidance sets an expectation for 

exchanges to ensure that underlying 

VCC’s represent an actual ton of carbon 

dioxide removed or reduced and that 

there is no double counting of those 

reductions or removals.8 It also sets an 

expectation that underlying VCC’s are 

subject to a meaningful independent 

evaluation and verification before 

issuance.9 Aligning the CFTC’s 

expectations with the ICVCM’s work 

also recognizes the global nature of this 

market and of the challenges posed by 

climate-related financial risk. 

I am interested in hearing from 

commenters if the guidance adapts the 

right parts of the ICVCM standards to 

encourage integrity and transparency in 

these markets and if the Commission’s 

adaptation provides clear, workable 

expectations. As the ICVCM standards 

have only been recently released, it will 

be important to monitor the adoption of 

these standards. 

I am also interested in hearing more 

from commenters about whether market 

integrity can be improved by exchanges 

relying on a crediting program’s 

processes and diligence, as assumed in 

the proposed guidance, or if there is a 

benefit to exchanges conducting 

additional due diligence into specific 

categories, protocols, or projects. 

I am interested to hear from 

commenters, including participants in 

our previous public consultation if this 

guidance meets their needs and helps 

address concerns they have raised. I 

especially hope to hear from farmers 

and others in the agricultural 

community, several of whom 

encouraged the CFTC to play a role in 

ensuring integrity in carbon markets in 

response to last year’s public 

consultation.10

As derivatives markets evolve, it is 

important that the Commission remain 

nimble and aware of changes, and 

continue to work with exchanges in 

listing products. I applaud the staff for 

their hard work on this guidance and I 

thank them for working with me to 

incorporate feedback I have heard in 

meetings with exchanges, market 

participants and public interest groups 

over the past 18 months. 

[FR Doc. 2023–28532 Filed 12–26–23; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF ENERGY 

[GDO Docket No. EA–463–A] 

Application for Renewal of 

Authorization To Export Electric 

Energy; Boston Energy Trading and 

Marketing LLC 

AGENCY: Grid Deployment Office, 

Department of Energy. 

ACTION: Notice of application. 

SUMMARY: Boston Energy Trading and 

Marketing LLC (the Applicant or BETM) 

has applied for renewed authorization 

to transmit electric energy from the 

United States to Canada pursuant to the 

Federal Power Act. 

DATES: Comments, protests, or motions 

to intervene must be submitted on or 

before January 26, 2024. 

ADDRESSES: Comments, protests, 

motions to intervene, or requests for 

more information should be addressed 

by electronic mail to 

Electricity.Exports@hq.doe.gov. 

FOR FURTHER INFORMATION CONTACT: 

Christina Gomer, (240) 474–2403, 

Electricity.Exports@hq.doe.gov. 

SUPPLEMENTARY INFORMATION: The 

United States Department of Energy 

(DOE) regulates electricity exports from 

the United States to foreign countries in 

accordance with section 202(e) of the 

Federal Power Act (FPA) (16 U.S.C. 

824a(e)) and regulations thereunder (10 

CFR 205.300 et seq.). Sections 301(b) 

and 402(f) of the DOE Organization Act 

(42 U.S.C. 7151(b) and 7172(f)) 

transferred this regulatory authority, 

previously exercised by the nowdefunct Federal Power Commission, to 

DOE. 

Section 202(e) of the FPA provides 

that an entity which seeks to export 

electricity must obtain an order from 

DOE authorizing that export. (16 U.S.C. 

824a(e)). On April 10, 2023, the 

authority to issue such orders was 

delegated to the DOE’s Grid Deployment 

Office (GDO) by Delegation Order No. 

S1–DEL–S3–2023 and Redelegation 

Order No. S3–DEL–GD1–2023. 

On December 19, 2018, DOE issued 

Order No. EA–463 to BETM to transmit 

electric energy from the United States to 

Canada as a power marketer for a period 

of five years. On November 14, 2023, 

BETM filed an application with DOE 

(Application or App.) for renewal of 

their export authority for a five-year 

term. App. at 8. 

According to the Application, BETM 

is a California limited liability company 

that is a wholly owned subsidiary of 

Diamond Energy Trading and 

Marketing, LLC. Id. at 1–2. BETM 

represents that it is a power marketer 


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