83378 Federal Register / Vol. 89, No. 199 / Tuesday, October 15, 2024 / Rules and Regulations 

1CFTC Mission Statement, available at: https://

www.cftc.gov/About/AboutTheCommission. 

2See CEA section 3(b), 7 U.S.C. 5(b). 

3See 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)). 

4See, generally, CEA section 5(d), 7 U.S.C. 7(d). 

There are 23 statutory Core Principles for DCMs. 

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

6 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 through 38.160. 

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 through 38.712. 

7 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. 

8See, e.g., DCM Core Principles 4, 5, and 12, 

discussed infra. 

9CEA section 5(d)(4), 7 U.S.C. 7(d)(4). See also 17 

CFR 38.250 through 38.258. 

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

17 CFR 38.300 through 38.301. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 38 

RIN 3038–AF40 

Commission Guidance Regarding the 

Listing of Voluntary Carbon Credit 

Derivative Contracts 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final guidance. 

SUMMARY: The Commodity Futures 

Trading Commission (the 

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

this guidance to outline factors for 

consideration by designated contract 

markets (‘‘DCMs’’), when addressing 

certain provisions of the Commodity 

Exchange Act (‘‘CEA’’), and CFTC 

regulations thereunder, that are relevant 

to the listing for trading of voluntary 

carbon credit (‘‘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 consideration by 

a DCM, in connection with the contract 

design and listing process, may help to 

advance the standardization of such 

products in a manner that promotes 

transparency and liquidity. 

DATES: Issued on October 15, 2024. 

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; Samantha Li, Industry 

Economist, (202) 418–5622, sli@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, or Julia Wood, 

Assistant Chief Counsel, (202) 853– 

4877, jlwood@cftc.gov, Division of 

Market Oversight, Commodity Futures 

Trading Commission, 77 West Jackson 

Blvd., Suite 800, Chicago, Illinois 

60604. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. The Regulatory Framework for DCMs 

B. Voluntary Carbon Markets 

1. Overview of Voluntary Carbon Markets 

2. Initiatives To Promote Transparency, 

Integrity and Standardization in the 

Voluntary Carbon Markets 

C. The Commission and Voluntary Carbon 

Markets 

1. Derivative Contracts on Environmental 

Commodities, Including VCCs 

2. CFTC Initiatives Relating to Voluntary 

Carbon Markets 

D. Proposed Guidance Regarding the 

Listing of VCC Derivative Contracts 

II. Comments on the Proposed Guidance 

A. Overview 

B. Specific Comments 

1. Scope and Application of Guidance 

2. A DCM Shall Only List Derivative 

Contracts That Are Not Readily 

Susceptible to Manipulation—VCC 

Commodity Characteristics 

3. A DCM Shall Monitor a Derivative 

Contract’s Terms and Conditions as They 

Relate to the Underlying Commodity 

Market 

4. A DCM Must Satisfy the Product 

Submission Requirements Under Part 40 

of the CFTC’s Regulations and CEA 

Section 5c(c) 

5. Foreign Boards of Trade 

III. Guidance Regarding the Listing of VCC 

Derivative Contracts 

A. A DCM Shall Only List Derivative 

Contracts That Are Not Readily 

Susceptible to Manipulation 

B. A DCM Shall Monitor a Derivative 

Contract’s Terms and Conditions as They 

Relate to the Underlying Commodity 

Market 

C. A DCM Must Satisfy the Product 

Submission Requirements Under Part 40 

of the CFTC’s Regulations and CEA 

Section 5c(c) 

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.1 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.2

DCMs are CFTC-regulated exchanges 

that provide participants in the 

derivatives markets with the ability to 

execute or trade derivative contracts 

with one another.3 In order to obtain 

and maintain designation with the 

CFTC, DCMs must comply with 

statutory ‘‘Core Principles’’ that are set 

forth in the CEA,4 as well as applicable 

CFTC rules and regulations.5 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; 6 provide a competitive, 

open and efficient market for trading; 7

and monitor trading activity.8 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.9 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.10 DCM Core 

Principle 12 requires a DCM to establish 

and enforce rules to protect markets and 

market participants from abusive 


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11CEA section 5(d)(12), 7 U.S.C. 7(d)(12). See also 

17 CFR 38.650 through 38.651. 

12CEA section 5(d)(3), 7 U.S.C. 7(d)(3). See also 

17 CFR 38.200 through 38.201. 

13CEA section 5c(c)(1), 7 U.S.C. 7a–2(c)(1). See 

also 17 CFR 40.2. 

14CEA sections 5c(c)(4) through (5), 7 U.S.C. 7a– 

2(c)(4) through (5). See also 17 CFR 40.3. 

15See, 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. 

16Unless 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). 

17 17 CFR part 38. 

18 17 CFR part 38, appendix B. 

19 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. 

20See 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. 

21See 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 derivative contracts that 

are swaps with one another. 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. 

22Physically-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. 

23Appendix C Guidance, paragraph (b)(1). 

24 Id. 

25Appendix C Guidance, paragraph (b)(2)(1) 

(nothing that for physical delivery contracts, an 

acceptable specification of terms and conditions 

would include, but may not be limited to, rules that 

address, as appropriate, the following criteria). 

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

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

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

practices, and to promote fair and 

equitable trading on the DCM.11

Additionally, each DCM has a specific 

statutory obligation, under DCM Core 

Principle 3, to only list for trading 

derivative contracts that are not readily 

susceptible to manipulation.12 As 

discussed in greater detail below, a 

DCM may 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,13 or by seeking Commission 

approval of the contract.14 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.15

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.16 These 

implementing rules are set forth in part 

38 of the Commission’s regulations.17

The Commission has also adopted, in 

appendix B to part 38,18 guidance and 

acceptable practices for DCMs to 

consider with respect to certain of the 

Core Principles.19

With respect to the DCM Core 

Principle 3 requirement that a DCM 

only list for trading derivative contracts 

that are not readily susceptible to 

manipulation, the Commission has 

adopted guidance that is set forth in 

appendix C to part 38—Demonstration 

of Compliance That a Contract is Not 

Readily Susceptible to Manipulation 

(the ‘‘Appendix C Guidance’’).20 The 

Appendix C Guidance outlines certain 

relevant considerations for a DCM when 

designing a derivative contract, and 

providing supporting documentation 

and data in connection with the 

submission of the derivative contract to 

the Commission.21 The Commission 

takes the considerations outlined in the 

Appendix C Guidance into account 

when determining whether, with 

respect to the contract, the DCM is 

satisfying its DCM Core Principle 3 

obligation only to list derivative 

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.22 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.23 The Appendix 

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.24 The Appendix C 

Guidance outlines certain criteria for a 

DCM to consider addressing in the 

contract’s terms and conditions,25

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 derivative 

contract upon the expiration of trading, 

inform the pricing of the derivative 

contract. Addressing these criteria 

clearly in the derivative contract’s terms 

and conditions, in a manner that reflects 

the individual characteristics of the 

underlying commodity, helps to ensure 

that trading in the derivative 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 

derivative contract to manipulation. 

Further, when a derivative 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 


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29 Id. 

30 Id. 

31This guidance uses the term ‘‘voluntary carbon 

credits’’ rather than ‘‘verified carbon credits,’’ since 

the 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’ 

physically-settled spot, forward or option 

transactions. See 2022 ISDA Verified Carbon Credit 

Transactions Definitions (‘‘VCC Definitions’’) 

Frequently Asked Questions, available at: 2022– 

ISDA-Verified-Carbon-Credit-TransactionsDefinitions-FAQs-061323.pdf. 

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

to also include other GHGs, 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, in 

November 2022, 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 wellfunctioning voluntary carbon market structure and, 

as a consequence, scale up these markets to allow 

them to achieve their environmental objectives. See, 

Voluntary Carbon Markets, Discussion Paper, CR/ 

06/22, November 2022, available at: https://

www.iosco.org/library/pubdocs/pdf/IOSCOPD718.

pdf. In December 2023, IOSCO published its 

Voluntary Carbon Markets Consultation Report, CR/ 

06/23, December 2023 (outlining a proposed set of 

good practices to promote the integrity and orderly 

functioning of voluntary carbon markets) available 

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

IOSCOPD749pdf. See also, Voluntary Carbon 

Markets Joint Policy Statement and Principles 

(‘‘Joint Policy Statement on Voluntary Carbon 

Markets’’), U.S. Department of the Treasury, May 

2024, available at: https://home.treasury.gov/ 

system/files/136/VCM-Joint-Policy-Statement-andPrinciples.pdf. 

38Currently, the four main 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. 

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

Carbon Market, Core Carbon Principles Section 5: 

Definitions; January 2024, Version 2, at 104. 

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 final 

Commission 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

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 certified 

mitigation project or activity may be 


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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, if and when 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 emission 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. 

44See, e.g., Federal Trade Commission, Guides for 

the Use of Environmental Marketing Claims, 

Regulatory Review Notice and Request for Public 

Comment, 87 FR 77766 (December 20, 2022) 

(Federal Trade Commission request for public 

comment on updating its Green Guides to include 

claims made regarding carbon offsets). 

45See, 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. See also, Joint Policy Statement 

on Voluntary Carbon Markets, available at: https:// 

home.treasury.gov/system/files/136/VCM-JointPolicy-Statement-and-Principles.pdf. 

46See, e.g., the World Wildlife Fund (‘‘WWF’’), 

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/). 

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, and 

particularly, whether they accurately 

represent 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 of the VCC 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 voluntary 

carbon 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 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 carbon mitigation 

goals, but also about whether any claims 

related to those goals are misleading.44

Market participants that are purchasing 

VCCs to help meet their carbon 

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. 

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.45 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 highintegrity 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.46 Such standards 

could serve as a foundation for criteria 

that purchasers of VCCs could 


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47The 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 futures and options 

contracts on mandatory emissions program 

instruments listed for trading on various DCMs. The 

vast majority of these contracts are no longer listed 

for trading. 

48Examples 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 US (‘‘ICE US’’) 

PJM Tri Qualified Renewable Energy Certificate 

Class I futures contract; the ICE US Texas 

Compliance Renewable Energy Certificate from CRS 

Listed Facilities Front Half Specific futures 

contract; the ICE US 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 US Biofuel Outright—D4 

RINS (OPIS) futures contract; the ICE US RGGI 

Vintage 2024 futures contract; and the ICE US 

California Carbon Allowance Current Auction 

futures contract. 

49NYMEX lists the following physically-settled 

futures contracts on voluntary carbon market 

products: (1) the CBL Global Emissions Offset 

(GEO) futures contract; (2) the CBL Nature-Based 

Global Emissions Offset (N–GEO) futures contract; 

(3) the CBL Core Global Emissions Offset (C–GEO) 

futures contract; (4) the CBL Nature-Based Global 

Emissions Offset Trailing futures contract; and (5) 

the CBL Core Global Emissions Offset Trailing 

futures contract. Nodal Exchange (‘‘Nodal’’) lists the 

following physically-settled futures and options 

contracts on voluntary carbon market products: (1) 

Verified Emission Reduction—Nature-Based 

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 and options contracts; (8) 

Verified Emission Reduction—Nature-Based 

Vintage 2024 futures and options contracts; (9) 

Verified Emission Reduction—Nature-Based 

Vintage 2025 futures and options contracts; (10) 

Verified Emission Reduction—Nature-Based futures 

and options contracts; (11) Verified Emission 

Reduction—CORSIA-Eligible futures and options 

contracts; (12) Carbon Removal futures contract; 

and (13) Global Emission Reduction futures 

contract. 

50The NYMEX CBL GEO futures contract; the 

NYMEX CBL N–GEO futures contract; and the 

NYMEX CBL C–GEO futures contract are currently 

the only futures contacts listed for trading on DCMs 

with open interest and trading volume. Information 

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

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

51For example, NYMEX’s CBL Global 

Environmental Offset futures contracts, and Nodal’s 

Verified Emission Reduction futures and options 

contracts, are physically-settled contracts. The 

NYMEX futures contracts permit VCCs to be 

delivered from the Verified Carbon Standard 

(‘‘VCS’’) Verra Registry, and the registries of the 

American Carbon Registry (‘‘ACR’’), and the 

Climate Action Reserve (‘‘CAR’’). The Nodal futures 

and options contracts permit VCCs to be delivered 

from VCS’s Verra Registry and from the Gold 

Standard Impact Registry, as well as from the ACR 

registry for certain contracts. 

52For the official announcement of the convening 

and related materials, see CFTC Announces 

Voluntary Carbon Markets Convening, available at: 

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

opaeventcftccarbonmarketconvene060222. 

53Request for Information on Climate-Related 

Financial Risk, 87 FR 34856 (June 8, 2022) (‘‘RFI 

on Climate-Related Financial Risk’’). 

54 In addition to soliciting public feedback on all 

aspects of climate-related financial risk as it may 

pertain to the derivatives markets, underlying 

commodities markets, registered entities, 

registrants, and other related market participants, 

the RFI on Climate-Related Financial Risk requested 

feedback on specific questions relating to: (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) PublicPrivate Partnerships/Engagement, and (10) Capacity 

Coordination. The RFI on Climate-Related Financial 

Risk stated that the Commission may use 

information provided in response to the RFI on 

Climate-Related Financial Risk 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. Id. 

55Twenty-five commenters on the RFI on 

Climate-Related Financial Risk responded to 

questions regarding product innovation and 44 

commenters on the RFI on Climate-Related 

Financial Risk responded to questions regarding the 

voluntary carbon markets. 

voluntarily adhere to, in order to 

demonstrate their commitment to using 

high-integrity VCCs to support their 

carbon 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 for trading in 2007.47 There are 

currently over 150 derivative contracts 

on mandatory emissions program 

instruments listed for trading on 

DCMs.48 As of August 2024, twentynine derivative contracts on voluntary 

carbon market products have been listed 

for trading by DCMs.49 Three of those 

contracts currently have open interest.50

Physically-settled derivative contracts 

on VCCs base their price on the spot 

price of VCCs. If the holder of a position 

in a physically-settled VCC 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 VCCs that 

meet the contract’s rules for delivery 

eligibility.51

2. CFTC Initiatives Relating to 

Voluntary Carbon Markets 

i. 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 highquality carbon credits, including 

product standardization and the data 

necessary to support the integrity of 

carbon credits’ GHG emissions removal 

and reduction claims.52 A further goal of 

the convening was to gather information 

from a wide variety of 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, end-users, public 

interest groups, and others. 

ii. Commission Request for Information 

In June 2022, the Commission issued 

for public comment a Request for 

Information (‘‘RFI on Climate-Related 

Financial Risk’’) 53 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.54

The responsive comments that the 

Commission received included feedback 

on specific questions relating to product 

innovation and voluntary carbon 

markets.55 Several commenters 

expressed support for the Commission 

to take steps that could support 

transparency and confidence in the 


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56See, e.g., International Swaps and Derivatives 

Association (‘‘ISDA’’) response to the RFI on 

Climate-Related Financial Risk, at 6; American 

Petroleum Institute (‘‘API’’) response to the RFI on 

Climate-Related Financial Risk, at 4; Center for 

American Progress response to the RFI on ClimateRelated Financial Risk, at 10; Environmental 

Defense Fund (‘‘EDF’’) response to the RFI on 

Climate-Related Financial Risk, at 12; Futures 

Industry Association (‘‘FIA’’) response to the RFI on 

Climate-Related Financial Risk, at 9; 

Intercontinental Exchange, Inc. (‘‘ICE’’) response to 

the RFI on Climate-Related Financial Risk, at 4. 

57See, e.g., CME Group (‘‘CME’’) response to the 

RFI on Climate-Related Financial Risk, at 10, FIA 

response to the RFI on Climate-Related Financial 

Risk, at 3; ISDA response to the RFI on ClimateRelated Financial Risk, at 7. 

58See, e.g., Heritage Foundation response to the 

RFI on Climate-Related Financial Risk, at 7; API 

response to the RFI on Climate-Related Financial 

Risk, at 2–4; Commercial Energy Working Group 

(‘‘CEWG’’) response to the RFI on Climate-Related 

Financial Risk, at 2–3. 

59See, e.g., API response to the RFI on ClimateRelated Financial Risk, at 3; ISDA response to the 

RFI on Climate-Related Financial Risk, at 6; Verra 

response to the RFI on Climate-Related Financial 

Risk, at 2. With respect to the Commission’s spot 

market anti-fraud and anti-manipulation authority, 

as well as its spot market authority with respect to 

false reporting, see, e.g., CEA section 6(c)(1), 7 

U.S.C. 9(1), which among other things 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 about 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

%20Markets%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. 

60For the official announcement of the convening 

and related materials, see CFTC Announces Second 

Voluntary Carbon Markets Convening on July 19, 

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

Events/opaeventvoluntarycarbonmarkets071923. 

61Commission Guidance Regarding the Listing of 

Voluntary Carbon Credit Derivative Contracts; 

Request for Comment, 88 FR 89410 (Dec. 27, 2023). 

62 Id. at 89416. 

63CEA section 5(d)(3), 7 U.S.C. 7(d)(3). 

64Appendix C Guidance, paragraph (b)(2)(i)(A). 

65 88 FR 89410 at 89416. 

66Appendix C Guidance, paragraph (b)(2)(i)(A). 

67 88 FR 89410 at 89416. 

voluntary carbon markets, particularly 

through recognition or support of 

private sector and multilateral 

initiatives to promote standardization 

and integrity.56 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.57 While there 

were comments expressing different 

views on the reach of the Commission’s 

jurisdiction to regulate voluntary carbon 

markets,58 many commenters supported 

the Commission utilizing its spot market 

anti-fraud and anti-manipulation 

authority in the voluntary carbon 

market space.59

iii. 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.60

D. Proposed Guidance Regarding the 

Listing of VCC Derivative Contracts 

On December 4, 2023, the 

Commission issued proposed guidance 

outlining factors for consideration by 

DCMs when addressing certain 

provisions of the CEA, and CFTC 

regulations thereunder, that are relevant 

to the listing for trading of VCC 

derivative contracts (the ‘‘Proposed 

Guidance’’).61 In developing the 

Proposed Guidance, the Commission 

considered those public comments on 

the RFI on Climate-Related Financial 

Risk that addressed product innovation 

and voluntary carbon markets. The 

Commission stated in the Proposed 

Guidance that, taking into account those 

public comments, it believed that 

guidance outlining factors for a DCM to 

consider in connection with the design 

and listing of VCC derivative contracts 

would further the mission of the CFTC, 

‘‘and may help to advance the 

standardization of VCC derivative 

contracts in a manner that fosters 

transparency and liquidity, accurate 

pricing, and market integrity.’’ 62

With a focus, primarily, on the design 

and listing of physically-settled VCC 

derivative contracts, the Proposed 

Guidance addressed certain Core 

Principle compliance considerations, as 

well as certain requirements relating to 

the submission of new contracts, and 

contract amendments, to the 

Commission. More specifically, the 

Proposed Guidance addressed certain 

considerations with respect to Core 

Principles 3 and 4 for DCMs, and the 

contract submission provisions set forth 

in CEA section 5c(c) and part 40 of the 

Commission regulations. 

The Proposed Guidance addressed, 

first, the DCM Core Principle 3 

requirement that a DCM only list for 

trading derivative contracts that are not 

readily susceptible to manipulation.63

As discussed above, the Appendix C 

Guidance outlines certain relevant 

considerations for a DCM when 

developing a contract’s terms and 

conditions, and providing supporting 

documentation and data in connection 

with the submission of the contract to 

the Commission. The Commission takes 

these considerations into account when 

determining whether, with respect to 

the contract, the DCM is satisfying its 

DCM Core Principle 3 obligations. 

In connection with a physicallysettled 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.’’ 64 In the 

Proposed Guidance, the Commission 

noted that, 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.65

The Appendix C Guidance further 

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.’’ 66

The Commission stated in the Proposed 

Guidance that, in its view, the very fact 

that standardization and accountability 

mechanisms for VCCs are still 

developing is, itself, ‘‘an individual 

characteristic of the commodity’’ that a 

DCM should take into account when 

designing a VCC derivative contract and 

addressing the underlying commodity— 

the VCC—in the contract’s terms and 

conditions.67 The Commission 

additionally recognized in the Proposed 

Guidance that, while standardization 

and accountability mechanisms for 

VCCs are currently still being 


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68 Id. 

69 Id. 

70For additional clarity, the final guidance states 

that a DCM should consider the VCC commodity 

characteristics when selecting one or more crediting 

programs from which eligible VCCs, meeting the 

contract’s specifications, may be delivered at the 

contract’s ‘‘settlement,’’ rather than expiration. 

71Appendix C Guidance, paragraph (b)(2)(1) 

(noting that for physical delivery contracts, an 

acceptable specification of terms and conditions 

would include, but may not be limited to, rules that 

address, as appropriate, the following criteria). 

72 88 FR 89410 at 89417. 

73 Id. at 89418 and 89419. 

74 Id. at 89419. 

75 Id. at 89420. 

76 Id. 

77S&P Global at 2. 

78Better Markets at 3. 

79FACA at 2. 

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.68

The Commission identified what it 

preliminarily believed these 

characteristics to be—referring to them, 

for purposes of the Proposed Guidance, 

as ‘‘VCC commodity characteristics’’— 

and stated that it believed that a DCM 

should take these VCC commodity 

characteristics into consideration when 

designing a physically-settled VCC 

derivative contract, and addressing in 

the contract’s terms and conditions the 

underlying VCC.69

The Proposed Guidance stated that, as 

a general matter, the Commission 

believed that a DCM should consider 

the VCC commodity characteristics 

when selecting one or more crediting 

programs from which eligible VCCs, 

meeting the contract’s specifications, 

may be delivered at the contract’s 

expiration.70 More specifically, the 

Commission stated that it preliminarily 

believed that a DCM should, at a 

minimum, consider the VCC commodity 

characteristics when addressing the 

following criteria in connection with 

contract design: 

• Quality standards 

• Delivery points and facilities 

• Inspection provisions 

These are among the criteria 

identified in the Appendix C Guidance 

as criteria relating to the underlying 

commodity that a DCM should consider 

addressing in the terms and conditions 

of a physically-settled derivative 

contract.71 As discussed above, 

addressing these criteria clearly in the 

contract’s terms and conditions, in a 

manner that reflects the underlying 

commodity’s individual characteristics, 

helps to ensure that trading in the 

contract is based on accurate 

information about the underlying 

commodity. This, in turn, helps to 

promote accurate contract pricing and 

reduce the susceptibility of the contract 

to manipulation. Moreover, 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. 

The Commission stated in the 

Proposed Guidance that, in connection 

with derivative contract design, it 

preliminarily believed that a DCM 

should consider the following VCC 

commodity characteristics when 

addressing quality standards for 

underlying VCCs: (a) transparency, (b) 

additionality, (c) permanence and 

accounting for the risk of reversal, and 

(d) robust quantification.72 When 

addressing delivery procedures for 

underlying VCCs, the Commission 

stated that it preliminarily believed that 

a DCM should consider the following 

VCC commodity characteristics: (a) 

governance, (b) tracking, and (c) no 

double counting.73 When addressing 

inspection or certification procedures 

for verifying compliance with quality 

requirements or any other related 

delivery requirements under the 

contract for underlying VCCs, the 

Commission stated that it preliminarily 

believed that a DCM should consider 

the validation and verification 

procedures of the crediting program.74

In addition to the above-described 

considerations in connection with DCM 

Core Principle 3, the Proposed Guidance 

also addressed considerations in 

connection with the requirement, under 

DCM Core Principle 4, for 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. 

The Commission stated that it 

preliminarily believed that the 

monitoring by a DCM of the terms and 

conditions of a VCC derivative contract, 

as contemplated under DCM Core 

Principle 4 and Commission regulations 

thereunder, 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.75

Finally, the Proposed Guidance 

highlighted certain requirements in 

connection with the submission of a 

VCC derivative contract to the 

Commission pursuant to CEA section 

5c(c)(5)(C) and part 40 of the 

Commission’s regulations, and the 

Commission’s expectation that 

information submitted to it by a DCM— 

including supporting documentation, 

evidence and data—to describe how the 

contract complies with the CEA and 

applicable Commission regulations, will 

be complete and thorough.76

The Proposed Guidance was subject 

to a 75-day public comment period. In 

addition to requesting comment on all 

aspects of the Proposed Guidance, the 

Commission requested comment on 17 

specific questions relating to the listing 

of VCC derivative contracts. The public 

comment period closed on February 16, 

2024. The Commission received 

approximately 90 comments on the 

Proposed Guidance, including the 

specific questions posed by the 

Commission. After thorough agency 

review of the comments received, the 

Commission has determined to finalize 

the Proposed Guidance with certain 

clarifications and revisions, as 

discussed below. 

II. Comments on the Proposed 

Guidance 

A. Overview 

Comments on the Proposed Guidance 

were submitted by a variety of 

interested parties, including derivatives 

exchanges, industry and trade 

associations, public interest 

organizations, climate advocacy groups, 

carbon credit rating agencies and 

standard setting bodies. Many 

commenters expressed their general 

support for the Proposed Guidance. For 

example, S&P Global Commodity 

Insights (‘‘S&P Global’’) stated that the 

Proposed Guidance correctly noted that 

outlining factors for a DCM to consider 

in connection with the design and 

listing of VCC derivatives may help the 

standardization of such products in a 

manner that promotes transparency and 

liquidity.77 Better Markets stated that 

‘‘the Proposed Guideline is a good step 

in establishing a fair, transparent, and 

efficient market for voluntary carbon 

credits.’’ 78 The Food, Agriculture 

Climate Alliance (‘‘FACA’’) stated that 

the ‘‘CFTC can play a role in promoting 

integrity and building confidence in 

high-quality carbon credits.’’ 79

A number of commenters were 

supportive of the VCC commodity 

characteristics identified in the 

Proposed Guidance, or confirmed that 

they are characteristics that have been 

identified broadly as helping to inform 


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80See, e.g., Anew Climate at 3; Bipartisan Policy 

Center (‘‘BPC’’) at 2; Woodwell Climate Research 

Center (‘‘Woodwell’’) at 1; WWF at 1. 

81See, e.g., Americans for Financial Reform 

Education Fund (‘‘AFREF’’) at 9; The American 

Forest & Paper Association (‘‘AF&PA’’) at 6; BeZero 

Inc. (‘‘BeZero’’) at 5; Clean Air Task Force (‘‘CATF’’) 

at 12–13; Carbon Direct Inc. (‘‘Carbon Direct’’) at 2; 

California Climate Exchange at 1; Clean Energy 

Policy Institute (‘‘CEPI’’) at 3; Kita Earth Ltd. 

(‘‘Kita’’) at 1; Institute for Policy Integrity at NYU 

School of Law (‘‘NYU Policy Integrity’’) at 6–7; 

Sylvera at 2. 

82See, e.g., Business Alliance to Scale Climate 

Solutions (‘‘BASCS’’) at 1; EDF at 9; The Nature 

Conservancy (‘‘TNC’’) at 1; WWF at 1. 

83See, e.g., Better Markets at 13; CEWG at 3. 

84See, e.g., Center for Climate and Energy 

Solutions (‘‘C2ES’’) at 2; International Emissions 

Trading Association (‘‘IETA’’) at 2; ISDA at 2; 

Puro.earth Oy (‘‘Puro’’) at 2; Verra at 7. 

85See, e.g., CME at 2; ICE at 4; Nodal at 2–5. 

86 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/. 

87Nodal at 2. 

88See CME at 4; ICE at 5. 

89 ICE at 5; Nodal at 4. 

90See supra, Sections I.B.1 and I.B.2. 91See, e.g., Ceres at 2–3; CME at 7; ICE at 10; 

IETA at 1; Nodal at 2; Public Citizen at 13; Terra 

Global Capital, LLC (‘‘Terra’’) at 6; Verra at 6; 

Xpansiv Limited (‘‘Xpansiv’’) at 4. 

92Nodal at 2. 

93BPC at 3. 

94 Verra at 2. 

the integrity of carbon credits.80 Certain 

commenters suggested additional 

characteristics that the Commission 

should recognize as helping to inform 

carbon credit integrity, or clarifications 

or revisions to the descriptions of the 

VCC commodity characteristics 

preliminarily identified by the 

Commission.81

Some commenters raised concerns 

related to the integrity of the voluntary 

carbon markets more generally, 

discussing issues addressed at a high 

level in Section I.B.2 hereto. Some 

commenters encouraged the 

Commission to prescribe the specific 

attributes that a VCC must possess in 

order to be eligible to serve as the 

underlying for a VCC derivative 

contract.82 Other commenters 

encouraged the Commission to ensure 

that the guidance was clearly tailored to 

reflect DCM obligations and expertise.83

A number of commenters recommended 

that the Commission acknowledge 

industry-recognized standards for highintegrity VCCs as tools that DCMs could 

look to, or rely upon, when considering 

the VCC commodity characteristics in 

light of a particular crediting program or 

particular VCCs.84

B. Specific Comments 

1. Scope and Application of Guidance 

Feedback from certain commenters 

indicated that their understanding was 

that the Commission’s guidance would 

establish new obligations for DCMs.85

The Commission emphasizes that its 

guidance does not establish new 

obligations for DCMs. The 

Commission’s guidance is not intended 

to modify or supersede existing 

statutory or regulatory obligations, or 

existing Commission guidance that 

addresses the listing of derivative 

contracts by CFTC-regulated exchanges, 

including the Appendix C Guidance. 

Rather, in recognition that VCC 

derivative contracts are a comparatively 

new and evolving class of products 86

which have certain unique attributes, as 

do voluntary carbon markets 

themselves, the Commission’s guidance 

is intended to assist DCMs in addressing 

existing obligations, when designing 

and listing such VCC derivatives. For 

example, the guidance takes into 

account that standardization and 

accountability mechanisms for VCCs are 

currently still developing, and outlines 

how that may inform a DCM’s contract 

design and listing considerations. A 

DCM’s obligations remain those that are 

set forth in the CEA and the 

Commission’s regulations, including 

(but not limited to) those statutory and 

regulatory requirements that are 

addressed in the Commission’s 

guidance, such as the obligation under 

DCM Core Principle 3 for a DCM only 

to list for trading contracts that are not 

readily susceptible to manipulation. 

Some commenters asserted that the 

existing contract listing framework for 

DCMs is both sufficient and appropriate 

for addressing the listing of VCC 

derivative contracts. For example, Nodal 

stated that it was not necessary for the 

Commission to adopt the Proposed 

Guidance because ‘‘the existing DCM 

regulatory framework . . . already 

provides the appropriate requirements, 

guidance, and flexibility to manage the 

listing of VCC derivatives.’’ 87

Intercontinental Exchange (‘‘ICE’’) and 

CME similarly stated that the existing 

contract listing framework is effective, 

and already enables DCMs to develop 

contract terms and conditions that 

account for relevant market factors, and 

that are appropriately designed to the 

characteristics of the underlying asset.88

Both ICE and Nodal noted that the 

Appendix C Guidance does not address 

a specific underlying asset class, with 

ICE adding that the Appendix C 

Guidance ‘‘does not mandate a set of 

criteria or attributes for any particular 

asset class.’’ 89 In this regard, the 

Commission reiterates that its guidance 

with respect to the listing of VCC 

derivative contracts is not intended to 

establish new obligations for DCMs, or 

modify or supersede existing statutory 

or regulatory requirements or the 

Appendix C Guidance. Rather, at this 

juncture in the evolution of VCC 

derivatives as a product class, and 

taking into account certain unique 

attributes of VCC derivatives and the 

voluntary carbon markets more 

generally,90 the Commission does 

believe that there is a benefit to 

outlining certain factors for 

consideration by a DCM in connection 

with the listing of VCC derivative 

contracts for trading. The guidance is 

intended as a tool for DCMs, to facilitate 

contract design, by helping to clarify 

how certain aspects of the existing 

contract listing framework may apply in 

the context of this particular class of 

products. The Commission believes that 

this can help to ensure that, upon 

delivery, the quality and other attributes 

of VCCs underlying a derivative contract 

will be as expected by position holders. 

The Commission believes that this, in 

turn, can support accurate pricing, help 

reduce the susceptibility of the contract 

to manipulation, and foster confidence 

in the contract that can enhance 

liquidity. 

As discussed in more detail below, 

certain commenters expressed concern 

that the Proposed Guidance, if adopted, 

could obligate a DCM to independently 

confirm the sufficiency of a crediting 

program’s policies and procedures for 

ensuring high-integrity VCCs—a 

responsibility which, these commenters 

asserted, extended beyond what was 

expected of DCMs under the existing 

contract listing framework and for 

which DCMs may not have the requisite 

expertise.91 For example, Nodal stated 

that while the existing contract listing 

framework contemplates consideration 

by a DCM of whether the commodities 

underlying a derivative contract are 

subject to quality standards, ‘‘DCMs are 

not required to possess the expertise 

necessary to opine on the sufficiency of 

these standards.’’ 92 BPC stated that, 

given their role within financial 

markets, DCMs ‘‘may not today have the 

in-house scientific or technical expertise 

needed to comprehensively evaluate’’ 93

carbon crediting programs. Likewise, 

Verra stated that performing an 

evaluation of VCC quality ‘‘requires 

substantial specialized technical 

expertise that DCMs may not adequately 

possess or be reasonably expected to 

acquire, given their specific 

roles. . . .’’ 94 Verra observed that it 

was not realistic to expect a DCM, 

whose core competency is derivatives 


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95See, e.g., Ceres at 2–3; CME at 7; IETA at 1– 

2; Terra at 6; Xpansiv at 4. 96CME at 7. 97 ICE at 6. 98CME at 8. 

99See, e.g., C2ES at 2; ICE at 7; IETA at 2; Puro 

at 5; Verra at 7. 

100 ICE at 7. 

101 ICE at 8. 

102 ICE at 7. 

103 Verra at 7. 

104See, e.g., Duke Financial Economics Center at 

9; Puro at 1; Terra at 2. 

105See discussion of the VCC commodity 

characteristic of ‘‘Transparency,’’ in section 

II.B.2.iii.1, infra. 

markets, to develop the same level of 

expertise in the complexities of VCC 

issuance and certification as those that 

are directly involved in the voluntary 

carbon market infrastructure, such as 

standard setting bodies, crediting 

programs, and spot market participants. 

Other commenters similarly identified 

standard setting bodies, crediting 

programs, and/or market participants, as 

best positioned to establish, or assess 

adherence with, VCC integrity 

standards.95 Some of these commenters 

suggested that a DCM’s primary focus 

should be on whether the crediting 

program for underlying VCCs is making 

information about its policies and 

procedures, and the projects or activities 

that it credits, publicly available, to 

assist derivative market participants in 

making their own informed evaluations, 

and comparisons, of VCC quality. For 

example, CME expressed its belief that 

it is ‘‘preferable for the crediting 

program to publish its methodology . . . 

and for the market participants to render 

their own judgment.’’ 96 ICE stated that, 

while it is important for market 

participants to have sufficient 

information to make an informed 

decision about the quality of VCCs that 

may underlie a DCM contract, ‘‘such 

information is best created by the 

crediting program and reviewed in the 

context of other information published 

by the program.’’ 97 CME asserted that 

the ‘‘lion’s share’’ of the criteria 

identified by the Commission as 

informing the integrity of a VCC is 

publicly available: ‘‘As such, 

participants in the VCC derivatives 

markets are free to transact, or not, 

based on their assessment of the data 

points that matter to them.’’ 98

A number of commenters 

recommended an acknowledgment, in 

the Commission’s guidance, that 

industry-recognized standards for highintegrity VCCs are tools that may assist 

DCMs in their consideration, with 

respect to a particular crediting 

program, of the VCC commodity 

characteristics identified by the 

Commission in the guidance.99 For 

example, ICE noted that certain 

crediting program operators and their 

methodologies have been approved 

under standards set by private sector 

initiatives that have been subject to 

open consultation.100 ICE also noted the 

ongoing initiatives by the International 

Organization of Securities Commissions 

(‘‘IOSCO’’) to develop a set of good 

practices to promote the integrity and 

orderly functioning of voluntary carbon 

markets.101 ICE recommended that the 

Commission permit DCMs to reasonably 

rely on assurances by a crediting 

program or registry that adheres to, and 

is audited against, threshold standards 

for high-quality carbon credits 

established by ‘‘international 

organizations such as IOSCO, The 

Integrity Council for the Voluntary 

Carbon Market (‘‘ICVCM’’), and 

International Civil Aviation 

Organization (‘‘ICAO’’), or similar 

standard setting bodies.’’ 102 Verra 

similarly recommended that the 

Commission permit DCMs ‘‘to rely on 

VCC certification and compliance set 

forth under relevant nongovernmental 

and governmental initiatives.’’ 103 Some 

commenters recommended that the 

Commission go so far as to require 

DCMs only to list VCC derivatives 

contracts whose underlying VCCs are 

approved or certified by an industryrecognized standards program for highintegrity VCCs.104

In responding to the above-described 

comments the Commission first 

addresses the suggestion that a DCM’s 

primary focus, when listing for trading 

a VCC derivative contract, should be on 

whether the crediting program for 

underlying VCCs is making information 

about the program publicly available. As 

discussed below, the Commission 

supports a DCM’s consideration of 

whether the crediting program for 

underlying VCCs is making detailed 

information about its policies and 

procedures, and the projects or activities 

that it credits, publicly available in a 

searchable and comparable manner.105

The Commission believes that making 

such information publicly available can 

assist market participants in evaluating 

the substance and sufficiency of 

crediting program policies and 

procedures, and making informed 

evaluations and comparisons of VCC 

quality. 

That said, DCMs do have statutory 

and regulatory obligations that are 

relevant to the design and listing for 

trading of derivative contracts, 

including an obligation under DCM 

Core Principle 3 to only list contracts 

that are not readily susceptible to 

manipulation. As discussed herein, the 

Appendix C Guidance outlines certain 

relevant considerations for DCMs in this 

regard, and the considerations that are 

outlined in the Appendix C Guidance 

are not limited to whether information 

regarding the commodity underlying a 

derivative contract is publicly available. 

For example, the Appendix C Guidance 

outlines certain criteria for a DCM to 

consider addressing in a derivative 

contract’s terms and conditions, 

including quality standards for the 

underlying commodity, delivery points 

and facilities, and inspection/ 

certification procedures for verifying 

compliance with quality standards or 

related delivery requirements under the 

contract. This guidance discusses 

certain characteristics that have been 

identified broadly as helping to inform 

the integrity of carbon credits, and 

addresses how consideration of these 

characteristics may inform the manner 

in which a DCM addresses quality 

standards, delivery points and facilities, 

and inspection/certification 

procedures—again, criteria already 

identified in the Appendix C 

Guidance—in connection with the 

design of a VCC derivative contract. The 

Commission further believes that 

consideration of these characteristics 

will help a DCM ensure that it 

understands economically significant 

attributes of the commodity—the VCC— 

underlying the contract. 

Notwithstanding the foregoing, and as 

more fully discussed below, the 

Commission has made certain revisions 

to this guidance to further ensure that 

the guidance appropriately reflects DCM 

obligations and expertise. Moreover, the 

Commission acknowledges the 

specialized, technical nature of 

crediting program policies, procedures, 

and technologies, as well as the fact that 

certain private sector and multilateral 

initiatives have engaged in extensive 

undertakings, involving public 

consultation, to develop standards for 

high-integrity VCCs against which such 

policies, procedures and methodologies 

can be assessed. The Commission is 

therefore clarifying its view that, as a 

general matter, industry-recognized 

standards for high-integrity VCCs can 

serve as tools for DCMs in connection 

with their consideration of the VCC 

commodity characteristics outlined in 

this guidance. 

2. A DCM Shall Only List Derivative 

Contracts That Are Not Readily 

Susceptible to Manipulation—VCC 

Commodity Characteristics 

i. General 

A number of commenters expressed 

their support for the VCC commodity 


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106See, e.g., API at 2; Woodwell at 1; WWF at 1. 

107API at 2. 

108See, e.g., Carbon Direct at 2; Carbon Removal 

Alliance (‘‘CRA’’) at 2. 

109BPC at 2. 

110See, e.g., aDryada at 1; BASCS at 1; BCarbon 

Inc (‘‘BCarbon’’) at 3; Carbon Direct at 2; EDF at 9; 

ICVCM at 6; Terra at 7; TNC at 1; WWF at 1. 

111Carbon Direct at 2. 

112Project safeguards are policies, standards and 

operational procedures designed to identify, avoid 

and mitigate adverse environmental and social 

impacts that may arise in connection with a carbon 

mitigation project or activity. 

113WWF at 1. 

114 ICVCM at 6; TNC at 1. 

115BASCS at 5–6; EDF at 9. 

116See, e.g., AFF at 4–5; BASCS at 5–6; C2ES at 

9; Flow Carbon at 5–6; TNC at 4; WWF at 1. 

117EDF at 9. 

118TNC at 3. 

119 ICVCM at 10. 

120TNC at 3. 

121See Charm at 5; CRA at 3. 

122Forest Peoples at 5. 

123 Iconoclast at 5. 

characteristics identified in the 

Proposed Guidance.106 For example, 

API stated that it ‘‘supports the CFTC’s 

reference to the broad core principles of 

additionality, permanence, robust 

quantification of emissions reductions 

and removals, no double counting, 

effective governance, tracking, 

transparency, and robust independent 

third-party validation and verification 

in the Guidance.’’ 107 Similarly, a 

number of commenters confirmed that 

the VCC commodity characteristics 

identified in the Proposed Guidance 

were recognized broadly as helping to 

inform the integrity of carbon credits.108

For example, BPC expressed agreement 

that the Proposed Guidance ‘‘identifies 

appropriate VCC commodity 

characteristics that have also been part 

of the [voluntary carbon markets] 

literature and policy discourse for many 

years.’’ 109

ii. Social and Environmental Factors 

A number of commenters addressed 

the specific questions posed by the 

Commission in the Proposed Guidance, 

regarding whether, in addition to the 

VCC commodity characteristics 

preliminarily identified by the 

Commission, there were other 

characteristics informing the integrity of 

carbon credits that were relevant to the 

listing of VCC derivative contracts—or 

whether there were VCC commodity 

characteristics that were identified in 

the Proposed Guidance that were not 

relevant to the listing of VCC derivative 

contracts. In response to these 

questions, several commenters 

responded that the Commission should 

recognize the social and environmental 

impacts of a mitigation project or 

activity, beyond the project or activity’s 

GHG reduction or removal benefits, as 

characteristics that inform the integrity 

of the carbon credits issued with respect 

to such project or activity.110 For 

example, Carbon Direct stated that it 

considered avoidance of negative 

impact on economic, social, and 

environmental systems, maximization of 

benefits to local communities and 

ecosystems, and environmental justice 

(equitable distribution of environmental 

benefits and harms resulting from GHG 

removal projects) as characteristics that 

are ‘‘essential to evaluating the quality 

of a VCC.’’ 111 WWF recommended that 

the Commission recognize a VCC 

commodity characteristic that explicitly 

addresses project safeguards,112 stating 

that such safeguards ‘‘are common 

attributes of high integrity development 

projects and should be included so that 

communities and surrounding ecology 

are not negatively impacted. . . .’’ 113

TNC and ICVCM suggested that the 

Commission should further align its 

guidance with ICVCM’s Core Carbon 

Principles by also including 

considerations with respect to social 

and environmental safeguards, as well 

as net zero alignment.114 BASCS and 

EDF also encouraged the Commission to 

consider guidance in this area that 

aligned with the ICVCM’s Core Carbon 

Principles.115

Similarly, the majority of commenters 

responding to a specific question on this 

matter in the Proposed Guidance 

expressed support for the consideration 

by a DCM, when designing a VCC 

derivative contract, of whether the 

crediting program for underlying VCCs 

has implemented measures to help 

ensure that credited mitigation projects 

or activities: (i) meet or exceed best 

practices on social and environmental 

safeguards and (ii) 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 2050.116

Several commenters stated that there 

was an association between the social 

and/or environmental impacts of a 

mitigation project or activity, and the 

price of the related VCCs. EDF asserted 

that ‘‘social safeguards . . . are 

economically significant attributes of 

the carbon credits. Sustainable 

development benefits and safeguards 

materially influence contract pricing, 

directly impact the extent to which the 

credit will be delivered and influence 

the political durability of those 

credits.’’ 117 TNC asserted that the social 

and environmental safeguards 

associated with a mitigation project or 

activity can significantly influence 

contract pricing, as projects infringing 

on the rights of local communities or 

adversely damaging ecosystems will be 

shunned by market stakeholders.’’ 118

ICVCM stated that ‘‘verifiable social and 

environmental attributes beyond 

mitigation and credit revenues are 

generally perceived by buyers as 

increasing the quality of credits, driving 

higher market prices.’’ 119

Several commenters suggested that 

DCMs look to standards for highintegrity VCCs developed by private 

sector or multilateral initiatives, and 

adherence by a crediting program to 

such standards, when considering the 

crediting program’s measures with 

respect to social and environmental 

safeguards and/or net zero alignment. 

For example, TNC recommended that a 

DCM consider ‘‘whether a crediting 

program has procedures that follow the 

recommendations of CORSIA’s 

safeguard requirements,’’ and whether 

the crediting program requires projects 

or activities to generate net positive 

social and environmental outcomes.120

As noted above, TNC, as well as 

ICVCM, BASCS, and EDF, referenced 

the ICVCM’s Core Carbon Principles as 

a standard to inform consideration of 

social and environmental safeguards 

and net zero alignment. Charm 

Industrial (‘‘Charm’’) and CRA, 

meanwhile suggested that a DCM 

consider whether a crediting program 

ensures that a mitigation project or 

activity complies with applicable U.S. 

regulations and legal requirements,121

and Forest Peoples Programme 

Amerindian Peoples Association 

Rainforest Foundation US (‘‘Forest 

Peoples’’) stated that a DCM should 

consider whether a crediting program 

has social safeguard requirements that 

align with the rights of indigenous 

persons under international law, such as 

the UN human rights treaties and the 

UN Declaration on the Rights of 

Indigenous Peoples.122

A few commenters expressed 

concerns associated with the 

consideration, by a DCM, of a crediting 

program’s measures with respect to 

social and environmental safeguards 

and/or net zero alignment. Iconoclast 

Industries, LLC (‘‘Iconoclast’’) stated 

that consideration of a crediting 

program’s measures with respect to net 

zero alignment would ‘‘make this a zerosum game. Incremental steps should be 

acceptable and . . . the market will 

continue facilitating the evolution 

towards’’ the 2050 goal.123 Terra 

similarly raised concerns regarding a 

DCM’s consideration of whether a 

crediting program has measures with 


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124Terra at 7. 

125While certain commenters disagreed that a 

DCM should consider such matters in connection 

with derivative contract design, their comments did 

not contradict those commenters who stated that 

market participants may recognize such matters as 

informing VCC quality. 

126See section I.A, supra. 

127See, e.g., ANSI National Accreditation Board 

(‘‘ANAB’’) at 5; Better Markets at 8; CarbonPlan at 

6–7; CATF at 8; Ceres at 3; CEWG at 11; Climeworks 

Corporation (‘‘Climeworks’’) at 3; Flow Carbon Inc. 

(‘‘Flow Carbon’’) at 3; IETA at 2; New York State 

Society of Certified Public Accountants 

(‘‘NYSSCPA’’) at 3; Xpansiv at 9. 

128Ceres at 3; ICE at 6; IETA at 2. 

129Better Markets at 8. 

130See, e.g., Anew Climate at 4; Flow Carbon at 

3; Sylvera at 3–4. 

131Anew Climate at 4. 

132See, e.g., Anew Climate at 4; CarbonPlan at 6– 

7; CATF at 8; Ceres at 3; Isometric at 3; Xpansiv 

at 9. 

133CarbonPlan at 6–7. 

134 Isometric at 3. 

135 ICE at 6. 

136See, e.g., ANAB at 5; Berkeley Carbon Trading 

Project (‘‘Berkeley’’) at 5; C2ES at 5; EDF at 6; 

ICVCM at 7; Sylvera at 3–4. 

137C2ES at 5; ICVCM at 7. 

138Berkeley at 5; Sylvera at 3–4. 

139Flow Carbon at 3. 

respect to net zero alignment, and 

commented that ‘‘the perfect has been 

the enemy of the good over many 

years.’’ 124

As discussed above, a number of 

commenters on the Proposed Guidance 

stated that a crediting program’s 

measures with respect to social and 

environmental safeguards may have a 

bearing on how participants in the 

voluntary carbon markets evaluate the 

quality—and by extension the price—of 

the VCCs that are issued by the crediting 

program.125 Also as discussed above, 

addressing in a derivative contract’s 

terms and conditions the quality of the 

underlying commodity that would be 

delivered upon physical settlement, can 

help to promote accurate pricing and 

reduce the susceptibility of the contract 

to manipulation.126

After consideration of the comments 

received, the Commission agrees that a 

crediting program’s measures with 

respect to social and environmental 

safeguards may be relevant to how 

market participants evaluate VCC 

quality. Accordingly, a DCM may 

determine that it is appropriate, when 

addressing quality standards in 

connection with derivative contract 

design, to consider whether the 

crediting program for underlying VCCs 

has implemented measures to help 

ensure that credited mitigation projects 

or activities (i) meet or exceed best 

practices on social and environmental 

safeguards, and (ii) 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. The Commission has 

determined to finalize its guidance 

accordingly. The Commission 

emphasizes, however, that it does not 

expect that a DCM will necessarily be 

evaluating the specifics of the crediting 

program’s measures with respect to 

social and environmental safeguards 

and net zero alignment, and this 

guidance does not prescribe any such 

measures. The Commission is simply 

noting that, because such measures may 

be relevant to how market participants 

evaluate VCC quality, a DCM may 

decide to consider whether a crediting 

program has implemented such 

measures when addressing quality 

standards in connection with the design 

of a VCC derivative contract. The 

Commission believes that, as a general 

matter, industry-recognized standards 

for high-integrity VCCs, and whether a 

particular crediting program has been 

approved or certified as adhering to an 

industry-recognized standard setting 

program, can serve as tools for a DCM, 

in connection with its consideration of 

the crediting program’s measures with 

respect to social and environmental 

safeguards and net zero alignment. 

iii. Quality 

a. Transparency 

Commenters broadly agreed that 

DCMs should provide, in a VCC 

derivative contract’s terms and 

conditions, information about the VCCs 

that are eligible for delivery under the 

contract, including information that 

readily specifies the crediting 

program(s) from which VCCs that are 

eligible for delivery under the contract 

may be issued.127 Ceres, ICE, and IETA 

agreed that the crediting programs for 

eligible VCCs should be identified in the 

contract’s terms and conditions.128

Better Markets supported the inclusion 

of ‘‘comprehensive information about 

the eligible VCCs for delivery,’’ and 

stated that such transparency would 

ensure that ‘‘contract pricing represents 

the quality of the underlying VCCs.’’ 129

Commenters also broadly agreed that 

DCMs should consider whether a 

crediting program for underlying VCCs 

is making information regarding the 

crediting program’s policies and 

procedures, and the projects or activities 

that it credits, publicly available.130 For 

example, Anew Climate stated that ‘‘a 

crucial component of high-quality VCCs 

is that the crediting program that issues 

those VCCs be transparent and make 

sufficient information about its projects 

and project activities publicly 

available.’’ 131

Certain commenters addressed the 

specific questions posed by the 

Commission in the Proposed Guidance, 

regarding whether there are criteria, 

factors or information that a DCM 

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, and whether 

there is sufficient transparency about 

credited projects or activities.132

CarbonPlan stated that DCMs should 

consider whether ‘‘data about VCCs are 

shared under terms that support both 

public access and reuse.’’ 133 Isometric 

HQ Limited (‘‘Isometric’’) stated that 

crediting programs ‘‘should be required 

to provide the highest degree of 

transparency possible (only excluding, 

where relevant, confidential 

information) in relation to all credits 

that they issue.’’ 134 ICE meanwhile, 

took the position that ‘‘market 

participants, and not DCMs, are best 

placed to assess whether the 

information made available by a 

crediting program is sufficient and 

detailed in respect of the crediting 

program’s policies and procedures and 

the projects or activities that it 

credits.’’ 135

Some commenters suggested that 

DCMs look to standards for highintegrity VCCs developed by private 

sector or multilateral initiatives, when 

considering a crediting program’s 

transparency measures.136 For example, 

C2ES and ICVCM referenced ICVCM’s 

standards with respect to transparency, 

particularly the requirement under the 

ICVCM Core Carbon Principle 

Assessment Framework that a crediting 

program ‘‘make all information about 

the projects and its project rules 

public.’’ 137 Berkeley and Sylvera, 

meanwhile, referred to California 

Assembly Bill 1305, the ‘‘Voluntary 

Market Disclosures Business Regulation 

Act,’’ which requires a business entity 

that is marketing or selling VCCs within 

the state to publicly disclose, among 

other things, specific details regarding 

the mitigation project in respect of 

which the VCCs are generated, as well 

as ‘‘[t]he pertinent data and calculation 

methods needed to independently 

reproduce and verify the number of 

emissions reduction or removal credits 

issued’’ for the project.138 Flow Carbon 

similarly suggested that publicly 

available project information should be 

sufficient to allow a buyer or third party 

to verify the accuracy of the claimed 

emission reductions.139


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140See, e.g., CATF at 8; Ceres at 3; Isometric at 

3; Terra at 4. 

141CATF at 8. 

142 ICE at 6. 

143See 88 FR 89410 at 89417. See also 17 CFR 

40.1(j)(1)(i) (defining the ‘‘terms and conditions’’ of, 

inter alia, a futures contract to include quality and 

other standards that define the commodity or 

instrument underlying the contract). 

144 Id. 

145 Id. 

146 88 FR 89410 at 89417. 

147 Id. 

148 Id. 

Some commenters recommended that 

DCMs should provide project- or 

activity-level information in the terms 

and conditions of a VCC derivative 

contract.140 For example, CATF stated 

that access to information at the level of 

the individual project or activity is 

necessary because of the flexibility that 

is given to project developers regarding 

the quantification of credits. CATF thus 

recommended that the terms and 

conditions for a VCC derivative contract 

provide buyers with access to specific 

information about how a crediting 

program’s protocols are implemented 

for a given project or activity, including 

‘‘baseline scenario assumptions and 

quantification metrics. . . , verification 

reports, annual reports, risk rating and 

justification, and the location of 

projects.’’ 141 ICE, meanwhile, stated 

that while a VCC derivative contract 

‘‘will have to identify clearly what is 

and is not deliverable under it . . . 

details as to the specific types of 

projects or activities for which [a 

crediting program] issues credits are 

made publicly available by the crediting 

programs on their websites and through 

their registries,’’ where they can be 

reviewed and assessed by market 

participants.142

The Commission appreciates all of the 

comments that it received on this 

subject. After considering the 

comments, the Commission has 

determined to finalize its guidance with 

respect to transparency as proposed, 

with certain revisions. The Commission 

continues to believe 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.143 While 

the information that is provided about 

eligible VCCs need not be 

‘‘comprehensive’’—for example, the 

terms and conditions would not 

necessarily have to identify each 

specific mitigation project or activity in 

respect of which VCCs that are eligible 

for delivery under the contract may be 

issued—the Commission agrees that the 

terms and conditions should make clear 

to market participants what is, and what 

is not, deliverable under the contract, 

including by providing information that 

readily specifies the crediting program, 

or programs, from which eligible VCCs 

may be issued.144 To the extent that 

eligible VCCs are associated with a 

specific category of mitigation project or 

activity—such as nature-based projects 

or activities—this also should be readily 

evident from the contract terms and 

conditions.145

Additionally, and after consideration 

of the comments received, the 

Commission continues to believe that, 

as part of the contract design process, a 

DCM should consider whether the 

crediting program for VCCs that are 

eligible for delivery under a derivative 

contract is making detailed information 

about the crediting program’s policies 

and procedures, and the projects or 

activities that it credits, publicly 

available in a searchable and 

comparable manner.146 Where such 

information is made available by a 

crediting program, it can assist market 

participants in making informed 

evaluations, and comparisons, of the 

quality of the VCCs that underlie 

derivative contracts, which can help to 

support accurate pricing. 

With respect to comments 

recommending that the terms and 

conditions of a VCC derivative contract 

should provide project- or activityspecific information, the Commission 

reiterates that this guidance focuses on 

considerations for a DCM at the 

crediting program level. As detailed 

more fully herein, the Commission 

believes that the policies and 

procedures that a crediting program has 

in place, along with its governance 

framework, inform the quality and other 

attributes of the VCCs that the crediting 

program issues. The Commission does 

not expect that a DCM will necessarily 

be considering the specific mitigation 

projects or activities for which eligible 

VCCs may be issued; the Commission 

expects that the DCM’s focus will be on 

its consideration of the crediting 

program itself. Nor, as discussed above, 

does the Commission expect that 

information regarding the specific 

mitigation projects or activities for 

which eligible VCCs may be issued 

would necessarily be included in the 

terms and conditions of a VCC 

derivative contract. The Commission’s 

view in this regard is predicated, 

however, on its view that the contract’s 

terms and conditions should include 

information that readily specifies the 

crediting program or programs from 

which eligible VCCs may be issued, so 

that market participants can evaluate 

the substance and sufficiency of projectand activity-level information that such 

crediting programs make publicly 

available. 

Likewise, while the Commission 

continues to believe that a DCM should 

consider a crediting program’s policies 

and procedures for making program 

information (including mitigation 

project and activity information) 

publicly available, the Commission is 

persuaded by comments stating that 

information regarding such policies and 

procedures is not the type of 

information that typically would be 

included in a derivative contract’s terms 

and conditions and has determined to 

revise its guidance accordingly. 

Finally, after taking into account 

comments received on the Proposed 

Guidance, the Commission clarifies its 

view that, as a general matter, industryrecognized standards for high-integrity 

VCCs, and whether a particular 

crediting program has been approved or 

certified as adhering to an industryrecognized standards setting program, 

can serve as tools for a DCM, in 

connection with its consideration of the 

crediting program’s transparency 

measures. 

b. Additionality 

In the Proposed Guidance, the 

Commission noted that additionality is 

viewed by many as a necessary element 

of a high quality VCC, and stated that it 

preliminarily believed that, 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.147 The Commission 

preliminarily recognized 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. The Commission 

specifically requested comment on 

whether this was the appropriate way to 

characterize additionality for purposes 

of its guidance, and also specifically 

requested comment on whether there 

were particular criteria or factors that a 

DCM should take into account when 

considering whether the procedures that 

a crediting program has in place provide 

a reasonable assurance that GHG 

emission reductions or removals will be 

credited only if they are additional.148

Commenters on the Proposed 

Guidance generally supported a DCM’s 

consideration, as part of the contract 

design process, of whether a crediting 

program for underlying VCCs can 

demonstrate that it has in place 


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83390 Federal Register / Vol. 89, No. 199 / Tuesday, October 15, 2024 / Rules and Regulations 

149See, e.g., Scientists affiliated with: Wilkes 

Center for Climate Science & Policy, University of 

Utah; University of California, Santa Barbara; 

University of California, Irvine (‘‘Affiliated 

Scientists’’) at 1–2; American Forest Foundation 

(‘‘AFF’’) at 3; Anew Climate at 4; BASCS at 3; 

Berkeley at 5; Better Markets at 9; C2ES at 5–6; 

Carbon Direct at 3; Carbonplace UK Ltd. 

(‘‘Carbonplace’’) at 3; CEPI at 5; Ceres at 3–4; 

EcoBalance Global LLC (‘‘Ecobalance’’) at 2; Flow 

Carbon at 3–4; ICVCM at 7; Isometric at 3; Kita at 

3; Nodal at 5; Sky Harvest at 10; Sylvera at 4; Terra 

at 5; Xpansiv at 9–10. 

150Better Markets at 9; Carbon Direct at 3. 

151See, e.g., BCarbon at 2; CIEL at 17; Context 

Labs at 2; Harvard Business School, University of 

Oxford Blavatnik School of Government, Law 

School, Stanford Doerr School of Sustainability, 

and the E-liability Institute (‘‘Harvard et al’’) at 14; 

Iconoclast at 4–6; Nori at 8; Public Citizen at 14; 

Simon Counsell at 3. 

152CIEL at 17. 

153Public Citizen at 14. 

154See, e.g., AFF at 3; Anew Climate at 4; BASCS 

at 3; Carbonplace at 3; CarbonPlan at 8; CEPI at 5; 

ICVCM at 7; Terra at 5; Sylvera at 4. 

155Carbonplace at 3. 

156 ICE at 7. 157CME at 6. 158Nodal at 5. 159See, e.g., AFF at 3; Affiliated Scientists at 1– 

2; Berkeley at 5; Carbon Direct at 3–4; CATF at 9; 

C2ES at 6; ICVCM at 7; Xpansiv at 10. 

160CATF at 9. 

161 Xpansiv at 10. 

162 88 FR 89410 at 89421. 

163See, e.g., AFF at 3; AFREF at 10; Berkeley at 

5; Carbon Direct at 4; CarbonPlan at 8; Charm at 3; 

CRA at 3–4; Natural Resources Defense Council at 

8; NYSSCPA at 4; NYU Policy Integrity at 1, 5–6; 

Public Citizen at 14; Sky Harvest at 10; WWF at 1. 

164AFREF at 10. 

165Charm at 3. 

166See, e.g., Affiliated Scientists at 1–2; CATF at 

10; Institute for Agriculture and Trade Policy 

(‘‘IATP’’) at 21. 

167Affiliated Scientists at 1–2. 

168CATF at 10. 

169ESMC at 8. 

170See, e.g., BCarbon at 2; BeZero at 6; CATF at 

10; Ceres at 3–4; Climeworks at 4; IATP at 21; Kita 

at 3; Sylvera at 4; TNC at 2. 

171Ceres at 3–4. 

172Ceres at 4. 

173BeZero at 6. 

procedures to assess or test for 

additionality.149 Better Markets and 

Carbon Direct characterized 

additionality as a ‘‘cornerstone’’ of 

quality mitigation projects and their 

resulting carbon credits.150

However, some commenters raised 

concerns about recognizing 

additionality as a characteristic of a 

high-integrity VCC, due to challenges in 

evaluating and/or verifying this 

characteristic.151 The Center for 

International Environmental Law 

(‘‘CIEL’’) stated that ‘‘[t]he evaluation of 

whether or not a project is additional, or 

of whether a marginal ton of removed 

carbon dioxide is additional, will rarely 

be straightforward.’’ 152 Public Citizen 

similarly took the position that 

additionality ‘‘is simply not possible to 

guarantee, ensure, or measure.’’ 153

With respect to whether there are 

particular criteria or factors that a DCM 

should take into account when 

considering a crediting program’s 

procedures to assess or test for 

additionality, some commenters 

suggested that DCMs look to standards 

for high-integrity VCCs developed by 

private sector or multilateral 

initiatives.154 For example, Carbonplace 

suggested that DCMs should consider 

CORSIA standards, or third-party 

assessments of crediting programs by 

carbon credit ratings providers or under 

standards such as the ICVCM’s Core 

Carbon Principles.155

Meanwhile, ICE stated that, although 

it was reasonable for a DCM to consider 

whether a crediting program can 

demonstrate that it has procedures in 

place to assesses or test for 

additionality, ICE disagreed that DCMs 

should be required to assess whether 

those procedures are of sufficient rigor 

to provide a reasonable assurance that 

GHG emission reductions or removals 

are credited only if they are additional: 

‘‘This responsibility should be borne by 

the crediting program operators.’’ 156

CME likewise asserted that, while as a 

factual matter a DCM could confirm that 

procedures are in place to assess for 

additionality, ‘‘it should not be expected 

to opine on the accuracy, robustness, or 

appropriateness of such procedures.’’ 157

Similarly, Nodal recommended that, if 

the Commission chose to finalize the 

Proposed Guidance, then the 

Commission should omit the reference 

to a DCM’s consideration of whether a 

crediting program’s procedures are 

‘‘sufficiently rigorous and reliable’’ to 

provide a reasonable assurance that 

GHG emission reductions or removals 

are credited only if they are 

additional.’’ 158

Several commenters supported how 

the Commission characterized 

additionality in the Proposed 

Guidance.159 CATF stated that ‘‘there is 

broad consensus for defining 

additionality as demonstrating that the 

project or activity would not have taken 

place without the monetary incentive of 

a carbon credit, especially for voluntary 

carbon credits.’’ 160 Similarly, Xpansiv 

stated that the characterization of 

additionality in the Proposed Guidance 

was ‘‘in line with the market 

consensus.’’ 161

As noted above, the Commission 

specifically requested comment in the 

Proposed Guidance on whether another 

characterization of additionality would 

be more appropriate, such as 

characterizing additionality 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.162 Some 

commenters supported characterizing 

additionality with reference to this 

‘‘regulatory test’’ for ‘‘legal’’ 

additionality, as well as with reference 

to ‘‘financial’’ additionality.163 For 

example, AFREF stated that ‘‘the 

Commission should add this regulatory 

test to its characterization of 

additionality.’’ 164 Meanwhile, Charm 

stated its view that legal additionality 

was implicit in the Commission’s 

proposed characterization of 

additionality, but should be explicitly 

stated ‘‘to ensure all projects meet both 

thresholds.’’ 165

Several commenters did not support 

recognizing additionality based on the 

‘‘regulatory test.’’ 166 Affiliated 

Scientists stated that the regulatory test 

‘‘is a necessary, but wholly insufficient 

element of a robust definition of 

additionality.’’ 167 CATF stated that 

‘‘even where regulatory requirements 

focus on the legal minimum to 

determine additionality . . . 

demonstration of additionality requires 

a comparison to a conservative 

business-as usual scenario’’ to provide a 

‘‘comparison to a counterfactual without 

the revenue provided from the 

credit.’’ 168

Meanwhile, Ecosystem Services 

Market Consortium (‘‘ESMC’’) stated 

that projects with additionality features 

‘‘should be characterized as 

implemented in response to market 

incentives, and the definition should 

not extend beyond this marketincentives framework to incorporate 

emission reductions resulting from 

projects or activities that go above-andbeyond the letter of the law.’’ 169

Some commenters suggested other 

alternatives to the Commission’s 

proposed characterization of 

additionality.170 Ceres suggested that 

DCMs should consider a range of 

approaches for testing additionality and 

did not believe that the ‘‘financial’’ 

additionality described in the Proposed 

Guidance should be the only measure of 

additionality.171 Among other 

approaches, Ceres cited performance 

standards and barrier analysis.172

BeZero similarly believed that ‘‘the 

additionality of a carbon project cannot 

and should not be assessed through a 

single lens—e.g., carbon accounting, 

financial or legal. Rather, a holistic 

analysis considering a range of factors is 

necessary.’’ 173 BCarbon expressed 

concern that ‘‘[w]e see the continued 

conservation of thriving ecosystems as 


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174BCarbon at 2. 

175CATF at 10. 

176 Xpansiv at 10. 

177CME at 6. 

178 Id. 

179See, e.g., aDryada at 1; Anew Climate at 6; 

Better Markets at 9; BCarbon at 2–3; Carbonplace at 

4; Carbon Market Watch at 5; Ceres at 4–5; CEPI at 

5; Emergent at 2; ESMC at 5; Isometric at 5; Kita 

at 3; NYSSCPA at 5; NYU Policy Integrity at 1; 

Sylvera at 5; Terra at 6; TNC at 2; WWF at 1; 

Xpansiv at 11. 

180Nodal at 5. 

181 Id. 

182BCarbon at 2. 

183 88 FR 89410 at 89421. 

184See, e.g., aDryada at 1; Anew Climate at 5; 

Carbon Market Watch at 5; CRA at 4; C2ES at 6; 

NYSSCPA at 5; Sylvera at 5; TNC at 2. 

185See, e.g., Ceres at 4; WWF at 1; Xpansiv at 10. 

186See, e.g., Affiliated Scientists at 2; BCarbon at 

2; CEPI at 5; Emergent at 2; Isometric at 4; Kita at 

3. 

187 Isometric at 4. 

essential to mitigation of climate 

change, yet the current form of 

additionality provides no mechanism 

for these activities to be financially 

valued.’’ 174 CATF, meanwhile, 

emphasized the need to take into 

account that the accepted meaning of 

the term additionality is likely to 

evolve.175 Similarly, Xpansiv stated that 

the characterization of additionality in 

the Commission’s guidance should not 

be ‘‘overly prescriptive to ensure DCMs 

are able to follow evolving VCC market 

developments, including revised or 

broadened definitions of key 

criteria.’’ 176 In that regard, CME noted 

that while there may be broad 

consensus that additionality is an 

important element of a high quality 

VCC, ‘‘the question of how additionality 

is defined and calculated is a complex 

and nuanced issue and does not appear 

to have reached industry consensus.’’ 177

According to CME, neither the 

Commission nor DCMs should dictate 

the definition.178

The Commission appreciates all of the 

comments that it received on this 

subject. After considering the 

comments, the Commission has 

determined to finalize its guidance with 

respect to additionality as proposed, 

with certain revisions. While the 

Commission appreciates that there may 

be some complexity involved in 

characterizing, and measuring, 

additionality, the comments on the 

Proposed Guidance support the 

Commission’s observation that 

additionality is broadly understood to 

be a ‘‘cornerstone’’ characteristic of a 

high quality VCC. 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 derivative 

contract may not accurately reflect the 

quality of the VCCs that may be 

delivered under the contract. Thus, the 

Commission continues to believe that, 

as part of the contract design process, a 

DCM should consider whether a 

crediting program has procedures to 

assess or test for additionality—and 

whether those procedures provide a 

reasonable assurance that GHG emission 

reductions or removals are credited only 

if they are additional. 

The comments on the Proposed 

Guidance indicate, however, that there 

is variation across the voluntary carbon 

markets in how, precisely, additionality 

is characterized. For example, while 

some commenters on the Proposed 

Guidance supported the Commission’s 

preliminary discussion of financial 

additionality, a number of commenters 

recommended other approaches, 

including performance standards, and 

approaches that addressed both 

financial additionality and legal 

additionality. The Commission further 

recognizes that as the voluntary carbon 

markets continue to develop, industry 

consensus on how to characterize 

additionality may evolve. 

Accordingly, the Commission has 

determined not to provide in its 

guidance a definition of additionality. 

Taking into account comments received 

on the Proposed Guidance, the 

Commission is clarifying its view that, 

as a general matter, industry-recognized 

standards for high-integrity VCCs can 

serve as tools for a DCM, both in 

connection with its consideration of a 

particular crediting program’s 

characterization of additionality, and in 

connection with the DCM’s 

consideration of whether the crediting 

program’s procedures to assess or test 

for additionality provide reasonable 

assurance that GHG emission reductions 

or removals will be credited only if they 

are additional, as so characterized. 

Further, the Commission is persuaded 

by comments stating that specific 

information regarding a crediting 

program’s procedures for assessing or 

testing for additionality is not the type 

of information that typically would be 

included in a derivative contract’s terms 

and conditions, and has determined to 

revise its guidance accordingly. 

c. Permanence and Accounting for the 

Risk of Reversal 

A number of commenters on the 

Proposed Guidance supported a DCM’s 

consideration, as part of the contract 

design process, of whether a crediting 

program for VCCs that are eligible for 

delivery under the contract has 

measures in place to address and 

account for the risk of reversal.179

However, certain commenters expressed 

concern about a DCM’s capacity and 

responsibility to assess the sufficiency 

of the crediting program’s measures in 

this regard. For example, Nodal 

recommended that, if the Commission 

finalized its guidance, the Commission 

should omit reference to a DCM’s 

consideration of whether the crediting 

program’s measures provide reasonable 

assurance that, in the event of a reversal, 

an underlying VCC will be replaced by 

a VCC of comparably high quality that 

meets the contemplated specifications 

of the contract,180 arguing that the 

Commission would otherwise be asking 

DCMs ‘‘to evaluate the sufficiency of 

VCC quality standards, which are 

normally addressed by the underlying 

markets.’’ 181 BCarbon, meanwhile, 

stated that it would be helpful for the 

Commission to elaborate on what 

constitutes a ‘‘similar’’ VCC for 

purposes of replacement.182

The Commission specifically 

requested comment on whether there 

were criteria or factors that a DCM 

should take into account when 

considering a crediting program’s 

measures to address reversal risk, 

particularly where the underlying VCCs 

are sourced from nature-based products 

or activities such as agriculture, forestry 

or other land use initiatives.183 Some 

commenters suggested that a DCM 

consider a crediting program’s 

definition of ‘‘permanence,’’ as applied 

to mitigation projects or activities for 

which the crediting program issues 

VCCs, and the crediting program’s 

transparency regarding that 

definition.184

A number of commenters explicitly 

supported consideration of whether a 

crediting program has a buffer ‘‘pool’’ or 

‘‘reserve’’ in place to address the risk of 

reversal.185 Some commenters 

recommended that DCMs should 

consider the quality of the VCCs in a 

crediting program’s buffer reserve.186

For example, Isometric suggested, one 

possibility would be to ensure that 

credits in the buffer reserve are derived 

from high-durability projects which 

themselves have a low risk of reversal, 

‘‘in order to partially mitigate cascading 

risk events that could overwhelm the 

buffer [reserves’] ability to compensate 

for reversals.’’ 187 Other commenters 

similarly suggested that DCMs consider 

whether a crediting program has 

mechanisms in place to account for the 

continuing sufficiency of the buffer 


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188See, e.g., Affiliated Scientists at 2; 

Carbonplace at 4; CarbonPlan at 9; Charm at 4; 

Terra at 5; Sky Harvest at 11. 

189Affiliated Scientists at 2. 

190BCarbon at 2. 

191See, e.g., Anew Climate at 5; CATF at 11; 

Carbonplace at 4; CEPI at 6; Charm at 4; C2ES at 

6; Ducks Unlimited, Inc. (‘‘Ducks’’) at 3; Emergent 

at 2; Flow Carbon at 4; Sylvera at 5; Terra at 6. 

192Sylvera at 5. 

193See, e.g., CATF at 11; ESMC at 5; Public 

Citizen at 15; Simon Counsell at 4. 

194CATF at 11. The CATF recommends adaptive 

risk ratings because climate change has the 

potential to impact carbon credits in certain 

localities. 

195Public Citizen at 15. 

196 88 FR 89410 at 89421. 

197See, e.g., aDryada at 1; Anew Climate at 6; 

BCarbon at 2–3; Better Markets at 9; Carbonplace at 

4; Carbon Market Watch at 5; CEPI at 5; Ceres at 

4–5; ESMC at 5; Emergent at 2; Isometric at 5; Kita 

at 3; NYSSCPA at 5; NYU Policy Integrity at 1; 

Sylvera at 5; Terra at 6; TNC at 2; WWF at 1; 

Xpansiv at 11. 

198Anew Climate at 5. 

199See, e.g., BCarbon at 2; IATP at 22; Isometric 

at 4; Terra at 6. 

200 Isometric at 4. 

201 IATP at 22. 

202See 88 FR 89410 at 89417. 

203See id. at 89418. 204The Commission understands that each 

crediting program, and the registry that it operates 

or uses, may handle reversals in its own way. 

Measures to address reversals that do not involve 

the cancellation of credits in a buffer reserve may 

include limiting future sales of credits, cancelling 

unsold credits, or having affected projects procure 

credits from other projects to offset the reversal, 

among other measures. 

reserve.188 For example, Affiliated 

Scientists stated that ‘‘DCMs should 

only accept carbon credits from 

crediting programs that have updated 

(and will continue to update as the 

science evolves) their buffer pools to 

reflect the latest science on disturbance 

risk to make such buffer pools 

sufficiently capitalized.’’ 189 Meanwhile, 

BCarbon stated that it was worth noting 

that buffer pools are not the only 

measure that exists for mitigation of 

reversal risk.190

Some commenters suggested that 

DCMs look to standards for highintegrity VCCs developed by private 

sector or multilateral initiatives, and 

adherence by a crediting program to 

such standards, when considering the 

crediting program’s measures to address 

and account for the risk of reversal.191

For example, Sylvera noted that 

‘‘industry initiatives such as IC–VCM 

have already developed quality 

frameworks that consider factors such as 

reversal risk,’’ and encouraged 

Commission alignment with these 

frameworks.192

Some commenters noted specific 

issues or factors for consideration when 

VCCs underlying a derivative contract 

are sourced from nature-based 

mitigation projects or activities, with 

many highlighting the heightened risk 

of reversal associated with such projects 

or activities.193 To provide more 

transparency regarding this risk, CATF 

recommended providing locationspecific data that adjusts with risk 

assessments over time.194 Public Citizen 

stated that ‘‘[d]ue to significant risk of 

reversal in the case of nature-based 

projects or activities, the DCM should 

either prohibit the listing of derivative 

contracts based on the same, or only list 

those whose underlying projects 

maintain a buffer pool equal to 100% of 

the carbon credit value.’’ 195

The Commission also specifically 

requested comment on how a DCM 

should account for a reversal, should 

one occur with respect to a VCC that is 

eligible for delivery under a derivative 

contract, and whether there are specific 

terms and conditions, or other rules that 

a DCM should consider including in a 

VCC derivative contract to account for 

reversal risk.196 Generally, commenters 

supported DCMs looking to the 

crediting program’s measures for 

addressing a reversal.197 For example, 

Anew Climate stated that DCMs should 

rely on the requirements and procedures 

of the respective crediting program: 

‘‘The DCM should consider how the 

crediting program addresses avoidable 

and unavoidable reversals when they do 

occur and requirements related to buffer 

pool contributions.’’ 198

Some commenters suggested that 

DCMs should design contracts in a 

manner that differentiates VCCs based 

on assessments of reversal risk.199 For 

example, Isometric stated that VCCs 

based on projects with higher risk of 

reversal should be identifiable and 

distinct from those VCCs based on 

projects with low or negligible risks of 

reversals: ‘‘This will enable more 

effective price discovery and better 

functioning markets.’’ 200 Meanwhile, 

IATP stated that ‘‘[i]f we assume that 

reversals will become more frequent and 

severe’’ due to an increase in extreme 

weather events, then ‘‘DCMs should 

begin to account for the impact of 

reversals on VCC estimated deliverable 

supply and on the possibility of market 

disruption if uncompensated reversals 

become widespread.’’ 201

The Commission appreciates all of the 

comments that it received on this 

subject. After considering the 

comments, the Commission has 

determined to finalize its guidance with 

respect to permanence and accounting 

for reversal risk as proposed, with 

certain revisions. After considering the 

comments, the Commission continues to 

believe that, in connection with the 

design of a VCC derivative contract, a 

DCM should consider whether the 

crediting program for underlying VCCs 

has measures in place to address and 

account for the risk of reversal.202

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 

reduce or remove. Accordingly, the 

Commission believes that 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. 

The Commission believes that 

comments on the Proposed Guidance 

support the Commission’s view that a 

DCM should consider whether a 

crediting program for underlying VCCs 

has a buffer reserve or other measures in 

place to address reversal risk 203—as 

well as the Commission’s view that 

relevant considerations with respect to 

a crediting program’s buffer reserve 

could include whether the crediting 

program regularly reviews the 

methodology by which the size of its 

buffer reserve is calculated, and whether 

there is a mechanism in place to audit 

the continuing sufficiency of the buffer 

reserve. In response to comments 

received, the Commission clarifies that 

a crediting program may, now or in the 

future, have measures other than, or in 

addition to, a buffer reserve to address 

the risk of credited emissions reductions 

or removals being reversed; this 

guidance contemplates that a DCM 

should consider whether a crediting 

program has a buffer reserve and/or 

other measures in place to address such 

risk.204

The Commission is also clarifying the 

statement, in the Proposed Guidance, 

that a DCM should consider whether a 

crediting program’s buffer reserve or 

other measures provide reasonable 

assurance that, in the event of a reversal, 

the VCCs intended to underlie a 

derivative contract will be replaced by 

VCCs of comparably high quality that 

meet the contemplated specifications of 

the contract. The Commission 

understands that VCCs in a buffer 

reserve are generally drawn down and 

cancelled to compensate for reversals 

associated with a project or activity, 

rather than being drawn upon to replace 

VCCs issued for such project or activity, 

and has determined to clarify its 

guidance accordingly. 

Furthermore, in response to 

comments received, the Commission is 


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205See, e.g., Anew Climate at 6; BCarbon at 2–3; 

Carbon Market Watch at 1; Carbonplace at 4; CEPI 

at 6; Ceres at 4–5; CIEL at 11; Context Labs at 2; 

Iconoclast at 5; Isometric at 5; NYSSCPA at 5; NYU 

Policy Integrity at 1; Puro at 7–8; Terra at 6; Sylvera 

at 5; Xpansiv at 11. 

206 88 FR 89410 at 89418. 

207 Id. at 89421. 

208See, e.g., Centre for Competition Policy at 4; 

CEPI at 6; Ceres at 3; Charm at 4; CIEL at 11; 

Context Labs at 2; Ducks at 4; Flow Carbon at 4; 

NYU Policy Integrity at 6; Sylvera at 3–4; TNC at 

3. 

209See CEPI at 6; Ducks at 4. 

210CEPI at 6. 

211TNC at 3. 

212CIEL at 11. 

213Sylvera at 3–4. 

214See NYU Policy Integrity at 6; TNC at 3. 

215Ceres at 3. 

216See, e.g., CATF at 13; Center for American 

Progress at 4; Public Citizen at 13. 

217CEPI at 6. 

218See, e.g., Carbonplace at 4; NYSSCPA at 5; 

Sylvera at 5; Terra at 6. 

219See, e.g., Carbonplace at 4. Carbonplace 

suggested that at a minimum, DCMs focus on 

standards which are supported by ISO certification. 

220See NYSSCPA at 5. 

221See, e.g., BASCS at 4; Ceres at 4–5; C2ES at 

6; Ducks at 4; ICVCM at 8; Sylvera at 5. 

222See, e.g., Center for American Progress at 4; 

Ceres at 2–3; CME at 7; ICE at 7; Nodal at 5; Public 

Citizen at 13; Verra at 6. 

223 ICE at 7. 

clarifying its view that, as a general 

matter, industry-recognized standards 

for high-integrity VCCs, and whether a 

particular crediting program has been 

approved or certified as adhering to an 

industry-recognized standards setting 

program, can serve as tools for a DCM, 

in connection with its consideration of 

a crediting program’s measures to 

address and account for the risk of 

reversal. 

While the Commission acknowledges 

comments stating that there is a 

heightened risk of reversal associated 

with nature-based mitigation projects 

and activities—including comments 

suggesting that VCCs issued for such 

projects or activities should not be 

permitted to underlie a derivative 

contract, or that derivative contracts 

should be designed in a manner that 

differentiates VCCs based on 

assessments of reversal risk—the 

Commission emphasizes that the 

purpose of this guidance is not for the 

Commission to make recommendations, 

or proscriptions, regarding the specific 

types of VCC derivative contracts that a 

DCM should list for trading. Rather, the 

guidance is intended to outline factors 

for the DCM, itself, to consider in 

connection with its contract design and 

listing activities, in order to help ensure 

that the DCM is complying with its 

statutory and regulatory obligations. The 

comments with respect to nature-based 

mitigation projects and activities do, 

however, underscore the Commission’s 

view that a VCC derivative contract’s 

terms and conditions should clearly 

identify what is deliverable under the 

contract—including by making it clear if 

eligible VCCs are associated with a 

specific category of mitigation projects 

or activities, such as nature-based 

products or activities. Transparency in 

this regard will help to make sure that 

market participants understand what 

VCCs can be expected to deliver under 

the contract, and to make an assessment 

of the VCCs’ quality, which will help to 

support accurate pricing. 

The Commission is persuaded by 

comments stating that specific 

information regarding a crediting 

program’s measures for estimating, 

monitoring, and addressing the risk of 

reversal is not the type of information 

that typically would be included in a 

derivative contract’s terms and 

conditions, and has determined to 

revise its guidance accordingly. 

d. Robust Quantification 

Commenters on the Proposed 

Guidance broadly agreed that the 

quantification methodologies or 

protocols used by a crediting program 

for calculating GHG reduction or 

removal levels help to inform the 

quality of VCCs issued by the crediting 

program.205 In the Proposed Guidance, 

the Commission stated that it 

preliminarily believed that, as part of its 

contract design market research, a DCM 

should consider the methodology or 

protocol used by a crediting program to 

calculate emission reduction or 

removals for VCCs underlying a 

derivative contract, and whether the 

crediting program can demonstrate that 

such methodology or protocol is robust, 

conservative, and transparent.206 The 

Commission specifically requested 

comment on whether there were 

particular criteria or factors that a DCM 

should take into account when 

considering, and/or addressing in a VCC 

derivative contract’s terms or 

conditions, whether a crediting program 

applies a robust, conservative and 

transparent methodology or protocol.207

A number of commenters suggested 

criteria or factors.208

CEPI and Ducks recommended that 

DCMs consider whether there are 

independent review procedures for a 

crediting program’s quantification 

methodologies, such as a public 

consultation or peer review process.209

CEPI additionally recommended that 

DCMs consider whether a crediting 

program relies on scientific evidence to 

develop its quantification 

methodologies, and whether there are 

‘‘mechanisms for the periodic review 

and/or revision of the 

methodologies.’’ 210 Similarly, TNC 

stated that any quantification 

methodology should use baselines that 

are periodically reviewed.211 CIEL 

stated that, in order to enable 

transparency, a crediting program ‘‘must 

make its methodology, and how it has 

been applied to individual projects, 

available to public scrutiny.’’ 212 Sylvera 

noted that robust quantification is only 

verifiable by third parties if there are 

sufficient disclosures by the project 

developers to allow third parties to 

check the accounting.213 NYU Policy 

Integrity and TNC believed that DCMs 

should consider ‘‘leakage risk’’ in 

quantification methodologies.214 Ceres 

cautioned against overly focusing on 

conservative accounting, which might 

lead to an underestimation of emission 

reductions or removals, and 

recommended balancing 

conservativeness with the ultimate goal 

of accuracy.215

Other commenters, meanwhile, raised 

concerns similar to those noted in 

Section I.B.2, regarding the lack of 

standardization across the voluntary 

carbon markets with respect to 

quantification methodologies and 

protocols, and how this may create 

issues with over-crediting and 

reliability.216 CEPI recommended that a 

crediting program have procedures in 

place to suspend or withdraw the use of 

a quantification methodology where 

there is sufficient evidence that the 

emission removals or reductions have 

been overstated.217

Some commenters did recommend 

quantification standards,218 such as the 

International Organization for 

Standardization (‘‘ISO’’) 14060 

standards for quantifying, monitoring, 

reporting and validating GHG 

emissions,219 or the GHG Protocol.220

Certain commenters recommended that 

DCMs look to standards for highintegrity VCCs developed by private 

sector or multilateral initiatives, such as 

the robust quantification standards 

under the ICVCM’s Core Carbon 

Principles (‘‘CCP’’) and CCP Assessment 

Framework, and adherence by a 

crediting program to such standards.221

Other commenters expressed concern 

with the view that a DCM should 

consider whether a crediting program’s 

quantification methodology or protocol 

is robust, conservative and 

transparent.222 ICE stated that expecting 

a DCM to engage in such an assessment 

would lead to unnecessary duplication 

of extensive, public consultation 

processes to which crediting program 

methodologies already are subject.223


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224 Verra at 6. 

225CME at 7. 

226 Id. 

227Ceres at 2–3. 

228Nodal at 5. 

229See 88 FR 89410 at 89418. The Commission 

agrees that, ultimately, the accuracy of estimations 

is a key objective—one that informs confidence that 

the voluntary carbon markets can serve as a tool to 

assist in emissions reduction efforts, as well as 

accurate pricing by market participants. 230 Id. 231 In the Proposed Guidance, the Commission 

generally referred to a crediting program’s 

methodology or protocol used for calculating the 

level of GHG reductions or removals associated 

with a mitigation project or activity. The 

Commission recognizes that crediting programs 

typically have multiple quantification 

methodologies or protocols, and has made certain 

revisions to its guidance to account for this. 

232See, e.g., AFREF at 6; ANAB at 5; Anew 

Climate at 6; BASCS at 4; Better Markets at 11; 

CATF at 13–14; C2ES at 7; Forest Peoples at 5; 

ICVCM at 8; Isometric at 5; NYSSCPA at 5; Simon 

Counsell at 4–5; Sylvera at 6; Terra at 6; WWF at 

1; Xpansiv at 11. 

Verra expressed concern that carrying 

out such an assessment would require a 

DCM to obtain specialized technical 

expertise about topics that are beyond 

its core competency in overseeing 

derivatives markets.224 Likewise, CME 

stated that it would be impractical for 

DCMs to develop the expertise to make 

such an assessment of a crediting 

program’s quantification methodology 

or protocol, and stated that it was also 

possible, ‘‘if not likely,’’ that various 

DCMs and market participants could 

have different views as to what level of 

robustness, conservatism and 

transparency is sufficient.225 CME 

believed that ‘‘it is preferable for the 

crediting program to publish its 

methodology . . . and for market 

participants to render their own 

judgment.’’ 226 Ceres similarly stated 

that DCMs should not conduct 

additional due diligence and should 

rely on crediting programs to 

demonstrate they have processes/ 

procedures to achieve high quality 

credits.227 Nodal recommended that, if 

the Commission finalized its guidance, 

the Commission omit reference to a 

DCM’s consideration of whether the 

crediting program’s quantification 

methodology or protocol is ‘‘robust, 

conservative and transparent’’, arguing 

that the Commission would otherwise 

be asking DCMs ‘‘to evaluate the 

sufficiency of VCC quality standards, 

which are normally addressed by the 

underlying markets.’’ 228

The Commission appreciates all of the 

comments that it received on this 

subject. After considering the 

comments, the Commission has 

determined to finalize its guidance with 

respect to robust quantification as 

proposed, with certain revisions. As 

recognized in the Proposed Guidance, 

and highlighted by some commenters, 

there are not currently standardized 

methodologies or protocols that are used 

across the voluntary carbon markets to 

quantify emission reduction or removal 

levels. Given the current absence of 

such standardized methodologies or 

protocols, the Commission continues to 

believe that robustness, 

conservativeness and transparency are 

factors that inform the extent to which 

a quantification methodology or 

protocol applied by a crediting program 

helps to ensure that the number of VCCs 

that are issued for a mitigation project 

or activity accurately reflects the 

emission reduction or removal levels 

associated with that project or 

activity.229 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 

reduce or remove. Accordingly, the 

Commission believes that the 

robustness, conservativeness and 

transparency of the quantification 

methodology or protocol that is applied 

with respect to the underlying VCCs can 

inform their quality—and, by extension, 

the pricing of the derivative contract. 

Furthermore, the Commission 

continues to believe that where the 

quantification methodology or protocol 

used to calculate the amount of VCCs 

for a particular project is robust, 

conservative, and transparent, the DCM 

should have a more reliable basis from 

which to form a deliverable supply 

estimate for exchange-set position limits 

purposes.230

Given the relevance with respect to 

VCC quality, as well as deliverable 

supply estimates, although the 

Commission acknowledges that a DCM 

may not have the specialized, technical 

expertise to determine whether a 

crediting program has demonstrated 

that the quantification methodology or 

protocol that it uses to calculate GHG 

emission reduction or removal levels for 

VCCs underlying a derivative contract is 

robust, conservative, and transparent, 

the Commission does believe that the 

DCM should consider whether there is 

reasonable assurance that the 

methodology or protocol used by the 

crediting program is robust, 

conservative and transparent.231 In this 

regard, the Commission acknowledges 

and supports commenters’ suggestions 

that factors that may inform the 

robustness, conservativeness, and 

transparency of a quantification 

methodology or protocol could include 

whether the methodology or protocol 

has been developed with reference to 

scientific evidence, whether the 

methodology or protocol has been 

subject to independent review 

procedures, and whether there are 

mechanisms for the periodic review 

and/or revision of the methodology or 

protocol. In response to ICE’s comment 

suggesting that all crediting program 

methodologies are subject to extensive, 

public consultation procedures, the 

Commission notes that review and 

consultation procedures may be 

crediting-program specific and the 

implementation by any particular 

crediting program of extensive public 

consultation procedures should not be 

taken as a given. 

Furthermore, and particularly in light 

of the comments received that 

highlighted the technical and 

specialized nature of a crediting 

program’s quantification methodologies 

or protocols, the Commission is 

clarifying its view that, as a general 

matter, industry-recognized standards 

for high-integrity VCCs, and whether a 

particular crediting program has been 

approved or certified as adhering to an 

industry-recognized standard setting 

program, can serve as tools for a DCM, 

in connection with its consideration of 

a crediting program’s quantification 

methodologies or protocols, including 

consideration of whether there is 

reasonable assurance that the 

methodology or protocol used to 

calculate emission reductions or 

removals for VCCs underlying a 

derivative contract is robust, 

conservative and transparent. 

The Commission is persuaded by 

comments stating that specific 

information about the quantification 

methodology or protocol used by a 

crediting program to calculate GHG 

emissions reductions or removals is not 

the type of information that typically 

would be included in a derivative 

contract’s terms and conditions, and has 

determined to revise its guidance 

accordingly. 

iv. Delivery Points and Facilities 

a. Governance 

Generally, commenters agreed that, as 

part of the contract design process for a 

VCC derivative contract, a DCM should 

consider whether the crediting program 

for underlying VCCs has a governance 

framework that supports the program’s 

independence, transparency and 

accountability.232 Better Markets, for 

example, stated that ‘‘DCMs should 

rigorously evaluate the governance 


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233Better Markets at 11. 

234 88 FR 89410 at 89419. 

235 Id. at 89421. 

236See, e.g., Anew Climate at 6; C2ES at 7; 

ICVCM at 8; Isometric at 5; Simon Counsell at 4– 

5; Sky Harvest at 13. 

237Anew Climate at 6. 

238See C2ES at 7; ICVCM at 8. 

239Simon Counsell at 4–5. 

240Anew Climate at 6. 

241 Xpansiv at 11. 

242See e.g., Sylvera at 6; Terra at 6. 

243 ICE at 7. 

244CME at 7. 

245 88 FR 89410 at 89419. 

246See e.g., CME at 7; ICE at 7. 

247 88 FR 89410 at 89419. 

248 Id. 

249 Id. 

frameworks . . . employed by the 

crediting programs of the underlying 

VCCs.’’ 233

In the Proposed Guidance, the 

Commission stated that, with respect to 

a crediting program’s governance 

framework, it preliminarily believed 

that a DCM should consider, among 

other things, a crediting program’s 

decision-making procedures, reporting 

and disclosure procedures, public and 

stakeholder engagement processes, and 

risk management policies, as well as 

whether information regarding those 

procedures and policies is made 

publicly available.234 The Commission 

specifically requested comment on 

whether there were other criteria or 

factors that a DCM should take into 

account when considering, and/or 

addressing in a VCC derivative 

contract’s terms or conditions, whether 

a crediting program’s governance 

framework effectively supports 

transparency and accountability.235

Several commenters responded to 

highlight conflicts of interest 

considerations.236 For example, Anew 

Climate recommended that DCMs 

consider whether a crediting program 

has policies in place to identify and 

mitigate potential conflicts of interest 

between various stakeholders.237

ICVCM and C2ES similarly 

recommended that consideration of a 

crediting program’s governance 

framework include consideration of the 

program’s conflict of interest policy.238

Likewise, Simon Counsell believed that 

a crediting program’s governance 

framework should address conflicts of 

interest, and also should include 

independent review processes and an 

appeal process.239 Anew Climate 

similarly stated that DCMs should 

consider ‘‘whether a grievance process 

and procedures by which to address 

those grievances are in place.’’ 240 With 

respect to transparency, Xpansiv 

recommended that DCMs specifically 

consider a crediting program’s 

transparency and responsiveness in 

connection with significant changes to 

project or credit status.241

Some commenters suggested that 

DCMs look to standards for highintegrity VCCs developed by private 

sector or multilateral initiatives, such as 

the governance standards under 

CORSIA, the International Carbon 

Reduction and Offset Alliance 

(‘‘ICROA’’) and the ICVCM’s Core 

Carbon Principles, and adherence by a 

crediting program to such standards.242

ICE believed that a DCM should not 

be responsible for determining the 

adequacy of a crediting program’s 

governance, and that a DCM should 

instead be permitted to rely on 

recognized standard setting bodies, ‘‘to 

establish threshold standards for highquality carbon credits which the 

crediting programs should adhere to and 

be audited against.’’ 243 CME was 

similarly of the view that a DCM should 

not determine the effectiveness of a 

crediting program’s independence, 

transparency, and accountability, 

because ‘‘DCMs are not experts in 

registry governance structures, and it is 

impractical to expect DCMs to develop 

such expertise.’’ 244

The Commission appreciates all of the 

comments that it received on this 

subject. After considering the 

comments, the Commission has 

determined to finalize its guidance with 

respect to governance as proposed, with 

certain revisions. 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 under a 

physically-settled VCC derivative 

contract, the Commission continues to 

believe that, as part of the contract 

design process, a DCM should consider 

the governance framework of the 

crediting program for underlying 

VCCs.245 More specifically, and after 

considering the comments received, the 

Commission believes that a DCM should 

consider whether the crediting 

program’s governance framework 

supports the crediting program’s 

independence, transparency, and 

accountability. With respect to 

particular criteria or factors that may 

inform such independence, 

transparency, and accountability, and in 

acknowledgment that a number of 

commenters highlighted these points, 

the Commission is revising its guidance 

to expressly recognize conflict of 

interest measures as a factor which may 

inform a crediting program’s 

independence, and appeals mechanisms 

as a factor which may inform a crediting 

program’s accountability. 

Furthermore, in response to 

comments received, the Commission is 

clarifying its view that, as a general 

matter, industry-recognized standards 

for high-integrity VCCs, and whether a 

particular crediting program has been 

approved or certified as adhering to an 

industry-recognized standards setting 

program, can serve as tools for a DCM, 

in connection with its consideration of 

a crediting program’s governance 

framework, including whether the 

governance framework supports the 

crediting program’s independence, 

transparency, and accountability. 

Finally, the Commission is persuaded 

by comments stating that specific 

information regarding a crediting 

program’s governance framework is not 

the type of information that typically 

would be included in a derivative 

contract’s terms and conditions,246 and 

has determined to revise its guidance 

accordingly. 

b. Tracking 

In the Proposed Guidance, the 

Commission stated that it preliminarily 

believed that a DCM should consider 

whether a crediting program for 

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.247 The Commission 

stated that the DCM should consider 

whether the crediting program operates 

or makes use of a registry that has 

measures in place to effectively track 

issuance, transfer, and retirement; 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.248 The Commission 

stated that, where the registry will serve 

as the delivery point for a physicallysettled 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.249

In its comments on the Proposed 

Guidance, ISDA highlighted that, 

because registries currently serve as 

delivery points for futures contracts, 

‘‘[i]t is important to ensure registries 

have consistent and transparent rules on 

how VCCs are verified, counted and 

transferred. Failure to correctly track 

and safeguard carbon credits, or a gap in 

standards in the creation of a carbon 

credit itself, could lead to fraudulent 


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250 ISDA at 3. 

251 Id. 

252 ICE at 8. 

253 Id. 

254 Id. 

255See, e.g., Anew Climate at 7; BASCS at 4; 

C2ES at 7; Carbon Direct at 7; Carbonplace at 5; 

CEPI at 6; Differentiated Gas Coordinating Council 

(‘‘DGCC’’) at 6; Ecobalance at 2; Flow Carbon at 5; 

Harvard et al at 18; Iconoclast at 5; ICVCM at 10; 

ISDA at 3; Nodal at 6; Nori at 5; NYSSCPA at 10; 

Public Citizen at 16; Sky Harvest at 14; Sylvera at 

6; Terra at 6; Xpansiv at 12. 

256See, e.g., Anew Climate at 7; Carbon Direct at 

7; DGCC at 6; Flow Carbon at 5; Harvard et al at 

18; ISDA at 3; Nori at 5; Sky Harvest at 14. 

257Anew Climate at 7. 

258See, e.g., Carbon Direct at 7; Harvard et al at 

18; Stanford Doerr School of Sustainability Stanford 

Law School (‘‘Stanford Doerr’’) at 1. 

259NYSSCPA at 10. 

260 ICVCM at 10. 

261See, e.g., BASCS at 4; C2ES at 7; ICVCM at 10; 

Sylvera at 6. 

262 ICVCM at 10. 

263See e.g., ICE at 8; Nodal at 5–6; Terra at 6. 

264Terra at 6. 

265Nodal at 5–6. 266See, e.g., CME at 7; ICE at 7. 

practices, such as greenwashing and 

double counting.’’ 250 ISDA went on to 

say that it believes the ‘‘CFTC has a 

regulatory interest in ensuring that VCC 

registries (that act as delivery points for 

carbon futures contracts) adopt 

appropriate procedures for tracking the 

buying and selling of credits in the 

context of VCC futures and other 

bilateral markets.’’ 251

ICE stated that ‘‘[i]t is important to 

distinguish between the role of carbon 

crediting programs and registries,’’ 

noting that the two roles are often 

‘‘conflated.’’ 252 ICE stated that ‘‘the 

physical delivery of VCCs is effectuated 

by transferring the VCC from the seller 

to the buyer in the registry operated by 

the crediting program.’’ 253 ICE stated 

that, because ‘‘market participants value 

the delivery mechanism as an important 

risk management function offered by 

DCMs and DCOs,’’ it believed that a 

‘‘DCM should seek confirmation from a 

crediting program utilizing a registry 

that it has appropriate measures in place 

to effectively track the issuance, transfer 

and retirement of VCCs.’’ 254

The Commission received several 

responses to its request for comment 

regarding whether there were other 

factors, in addition to those identified in 

the Proposed Guidance, that a DCM 

should take into account when 

considering, and/or addressing in a VCC 

derivative contract’s terms and 

conditions, whether a crediting 

program’s registry has processes and 

procedures in place to help ensure 

clarity and certainty with respect to the 

issuance, transfer and retirement of 

VCCs.255

Like ISDA, some commenters 

highlighted the importance of 

transparent registry rules regarding VCC 

tracking and retirement.256 For example, 

Anew Climate responded that ‘‘DCMs 

should assess whether the crediting 

program has published transparent 

operating procedures for its registry 

activities, explaining how these 

processes work, as well as terms of use 

that govern participation in the 

program.’’ 257 Other commenters 

supported specific accounting 

frameworks for tracking to help ensure 

accuracy.258

NYSSCPA supported tracking VCCs 

by assigning them a ‘‘unique serial 

number’’ and having the crediting 

program, or registry, track the VCC 

throughout its life cycle, including 

changes in ownership following 

delivery and the VCC’s retirement.259

ICVCM similarly stated that unique 

identifiers ‘‘can dramatically improve 

transparency and reduce risk of double 

counting.’’ 260

Sylvera, BASCS, ICVCM, and C2ES 

responded in support of ICVCM’s 

standards with respect to tracking and 

double counting.261 The ICVCM CCP 

Assessment Framework requires 

crediting programs to have registry 

provisions that prevent double 

registration of mitigation activities, 

double use of a carbon credit after it has 

been cancelled or retired for a specific 

use, and measures to prevent double 

claiming with mandatory domestic 

mitigation programs or incentivization 

schemes (e.g., Renewable Energy 

Certificates).262

A few commenters expressed concern 

with the view that a DCM should 

consider the effectiveness of a crediting 

program’s tracking measures.263 Terra 

stated that this should be handled by 

the crediting program.264 Nodal 

recommended that, if the Commission 

finalized the Proposed Guidance, the 

Commission should omit reference to a 

DCM’s consideration of whether a 

crediting program operates or makes use 

of a registry that has measures in place 

to ‘‘effectively’’ track VCCs, arguing that 

the Commission would otherwise be 

asking DCMs ‘‘to evaluate the 

sufficiency of VCC quality standards, 

which are normally addressed by the 

underlying markets.’’ 265

The Commission appreciates all of the 

comments that it received on this 

subject. After considering the 

comments, the Commission has 

determined to finalize its guidance with 

respect to tracking as proposed, with 

certain revisions. As discussed in the 

Proposed Guidance, 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. 

It is therefore important for each 

credited VCC to be uniquely associated 

with a single emission reduction or 

removal of one metric ton of carbon 

dioxide. Processes and procedures to 

help ensure clarity and certainty with 

respect to the issuance, transfer and 

retirement of VCCs can help support 

this. Conversely, 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. The fact that the current 

voluntary carbon market structure 

typically relies on the registries used or 

operated by crediting programs to 

effectuate the physical delivery of VCCs 

underlying a derivative contract further 

supports the Commission’s view that a 

DCM should consider whether there is 

reasonable assurance of the 

effectiveness of the tracking measures 

that a crediting program has in place. 

In response to comments received, the 

Commission is clarifying its view that, 

as a general matter, industry-recognized 

standards for high-integrity VCCs, and 

whether a particular crediting program 

has been approved or certified as 

adhering to an industry-recognized 

standard setting program, can serve as 

tools for a DCM, in connection with its 

consideration of the crediting program’s 

tracking measures. 

Finally, the Commission notes that 

the Proposed Guidance indicated that it 

may be appropriate, in certain 

circumstances, to include in a 

physically-settled VCC derivative 

contract certain conditions relating to 

the tracking measures that the registry 

used or operated by the crediting 

program for underlying VCCs has in 

place. While, based on the specific facts 

and circumstances in issue, a DCM may 

determine that inclusion of such 

conditions in a particular contract is 

appropriate, the Commission is 

persuaded by the broader comments 

that it received regarding the type of 

information that typically would, and 

would not, be included in a derivative 

contract’s terms and conditions,266 and 

has determined to revise its guidance 

accordingly. 

c. No Double-Counting 

In the Proposed Guidance, the 

Commission stated that it preliminarily 


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267 88 FR 89410 at 89419. 

268Carbon Market Watch at 4. 

269 aDryada at 1. 

270AFF at 4. 

271 88 FR 89410 at 89421. 

272CarbonPlan at 9–10. 

273See Bloomberg Philanthropies at 3; C2ES at 7; 

ICVCM at 9. 

274See, e.g., Carbon Direct at 7; Harvard et al at 

18. 

275See, e.g., BCarbon at 3; Context Labs at 1; 

DGCC at 6; Ecobalance at 2; Flow Carbon at 5; 

Harvard et al at 7; Iconoclast at 5; Nori at 6; 

NYSSCPA at 6; Stanford Doerr at 1. 

276See, e.g., Nodal at 6; Terra at 6. 

277Terra at 6. 

278Nodal at 6. 

279 Id. at 5. 

280Better Markets at 12. 

281 Id. 

282WWF at 1. 

believed that a DCM should consider 

whether the crediting program for 

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 

cancellation.’’ 267 Carbon Market Watch 

highlighted that the risk of double 

counting can manifest itself in many 

ways. For example, a given emission 

reduction may be claimed by multiple 

actors, such as various financers of the 

mitigation project or activity (e.g., a 

bank that issues a loan to the project or 

activity, as well as a company that 

purchases VCCs from the project or 

activity). 268

aDryada stated that it believes there is 

confusion in the voluntary carbon 

markets regarding the understanding of 

the term ‘‘double counting’’ (i.e., 

whether the term refers to double 

issuance, double use, or double 

claim).269 The AFF suggested a 

clarification to the Commission’s ‘‘no 

double-counting’’ characterization, to 

recognize that there is no double 

counting where emission reductions or 

removals from a mitigation project or 

activity are counted only once toward 

achieving mitigation targets or goals.270

The Commission specifically 

requested comment on whether there 

are 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.271 CarbonPlan suggested that a 

DCM should consider whether a 

crediting program discloses ‘‘the precise 

location and boundaries of projects that 

generate VCCs.’’ 272 Bloomberg 

Philanthropies, ICVCM, and C2ES 

highlighted that the use of unique 

identifiers can reduce the risk of double 

counting.273 Other commenters 

supported specific accounting 

frameworks for tracking to help ensure 

accuracy.274 Some commenters 

provided information regarding 

blockchain technology or digital assets. 

In general, these commenters supported 

the use of blockchain or similar 

technology for VCC-related 

recordkeeping to help avoid double 

counting.275

A few commenters expressed concern 

with the view that a DCM should 

consider the effectiveness of a crediting 

program’s measures with respect to 

double counting.276 Terra stated that 

this should be handled by the crediting 

program.277 Nodal recommended that, if 

the Commission finalized the Proposed 

Guidance, the Commission should omit 

reference to a DCM’s consideration of 

whether the crediting program can 

demonstrate that it has ‘‘effective 

measures’’ in place with respect to 

double counting,278 arguing that the 

Commission would otherwise be asking 

DCMs ‘‘to evaluate the sufficiency of 

VCC quality standards, which are 

normally addressed by the underlying 

markets.’’ 279

The Commission appreciates all of the 

comments that it received on this 

subject. After considering the 

comments, the Commission has 

determined to finalize its guidance with 

respect to double counting as proposed, 

with certain revisions. The Commission 

understands that the term ‘‘double 

counting’’ may be interpreted differently 

within the voluntary carbon markets, 

depending, for example, on the context. 

The Commission clarifies that, since 

this guidance is focused on 

considerations for DCMs in connection 

with the listing for trading of physicallysettled VCC derivative contracts, the 

Commission is primarily concerned 

with double issuance—i.e., the issuance 

of the same VCC more than once. 

After considering the comments 

received, the Commission believes that 

a DCM should consider whether a 

crediting program for underlying VCCs 

has measures in place that provide 

reasonable assurance that credited 

emission reductions or removals are not 

double counted. As discussed above in 

connection with tracking, 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 to help 

ensure that VCCs effectively further 

carbon mitigation goals, and, relatedly, 

to help avoid the distortion or 

opaqueness of a VCC derivative 

contract’s pricing. The Commission 

therefore believes that it is important for 

a DCM to consider whether a crediting 

program has measures in place, 

including measures with respect to 

double counting, that provide 

reasonable assurance that the VCCs 

issued by the crediting program are 

unique. 

In response to comments received, the 

Commission is clarifying that, as a 

general matter, industry-recognized 

standards for high-integrity VCCs, and 

whether a particular crediting program 

has been approved or certified as 

adhering to an industry-recognized 

standard setting program, can serve as 

tools for a DCM, in connection with its 

consideration of the crediting program’s 

measures to prevent double counting. 

v. Inspection Provisions—Third-Party 

Validation and Verification 

Certain commenters on the Proposed 

Guidance highlighted the role that 

effective crediting program validation 

and verification procedures play in 

supporting VCC quality, and supported 

the Commission’s recognition of the 

benefits of validation and verification by 

a reputable, disinterested party or body. 

Better Markets stated that the validation 

and verification processes ‘‘are vital for 

confirming that credited mitigation 

projects or activities adhere to the 

[crediting] program’s rules and 

standards, ensuring that the emission 

reductions or removals claimed are 

genuine and verifiable.’’ 280 Better 

Markets further stated that ‘‘the 

involvement of reputable, independent 

third-parties in the validation and 

verification of projects or activities is 

crucial. Such independent oversight 

provides assurance that the GHG 

emissions reductions or removals are 

accurately achieved, thereby enhancing 

the quality of the underlying VCCs.’’ 281

WWF, meanwhile, stated that a thirdparty verification process ‘‘should be a 

requirement to improve the integrity of 

the credit and ultimately the integrity of 

the voluntary carbon market.’’ 282 Better 

Markets stated that ‘‘best practices in 

third-party validation and verification 

should ensure diverse and impartial 

review by preventing exclusive reliance 

on a single validator for all projects or 

activities, and should include 

mechanisms for addressing performance 

issues, conducting periodic reviews of 


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283Better Markets at 12. 

284See, e.g., AFF at 4; Carbonplace at 5; CEPI at 

7; EDF at 8; IATP at 23; Kita at 5; Public Citizen 

at 17; Terra at 5; Xpansiv at 12. 

285 Xpansiv at 12. 

286Flow Carbon at 5. 

287Terra at 7. 

288 ICVCM at 9. 

289 ICE at 9–10, stating that the ‘‘delivery 

procedures used by the relevant DCO for the [VCC 

derivative contract] should take account of the 

functions provided by the relevant registries, 

specify the responsibilities of parties in the delivery 

process, and address the risks to the DCO and 

market participants for delivery failures, consistent 

with the DCO core principles.’’ The Commission 

reiterates that this guidance focuses considerations 

for DCMs in connection with the design, and 

listing, of VCC derivative contracts. 

290EDF at 8. 

291 Id. 

292CME at 8. 

293Nodal at 6. 

294Appendix C Guidance, paragraph (b)(2)(i)(B). 

validators, and ensuring that ongoing 

validation and verification are carried 

out by different parties from those who 

performed the initial assessments.’’ 283

Most commenters responding to a 

specific request for comment on this 

point agreed that the delivery 

procedures for a physically-settled VCC 

derivative contract should describe the 

responsibilities of registries, crediting 

programs, or other third parties required 

to carry out the delivery process.284

Xpansiv stated that such a description 

enables buyers and sellers to trade VCClinked contracts ‘‘with a clear 

understanding of the delivery 

mechanism, the responsibilities of all 

parties involved in the delivery process 

and the chain of custody of VCCs being 

transferred in the delivery process.’’ 285

Flow Carbon stated that, ‘‘[f]or market 

participants, transparency around the 

settlement process, coupled with 

credible third-party review and 

independent verification, is critical to 

ensuring that firms have the confidence 

to deploy capital into these markets and 

products.’’ 286 Terra stated that delivery 

procedures should clearly outline the 

‘‘responsibilities of all parties involved 

to ensure the integrity and authenticity 

of the VCCs upon delivery.’’ 287

ICVCM stated that contracts ‘‘should 

not have to describe the responsibilities 

of third parties if the roles of the third 

party are known to both parties, and the 

performance of those responsibilities by 

third parties can be managed through 

usual risk management in contracts by 

allocating that risk between the contract 

parties or providing for default/force 

majeure etc. type risks.’’ 288

ICE highlighted the role of the DCO in 

the delivery process.289 EDF noted that 

the ‘‘responsibilities of registries, 

crediting programs and other thirdparties required to carry out the delivery 

process are generally articulated in 

Terms of Use contracts available on 

registry websites and mandatory for 

registry account activation.’’ 290 EDF 

stated that ‘‘DCMs should specify which 

registry or registries will be used, and 

also how the respective Terms of Use 

satisfy governance, tracking 

mechanisms and double-counting 

prevention measures.’’ 291

A few commenters expressed concern 

that, under the Proposed Guidance, 

DCMs would be expected to assess the 

sufficiency of a crediting program’s 

procedures for validating and verifying 

that credited mitigation projects or 

activities meet the program’s rules and 

standards. CME stated that serving as 

arbiter of such procedures is not the 

appropriate role of a DCM.292 Nodal 

similarly recommended that, if the 

Commission finalized the Proposed 

Guidance, the Commission omit 

reference to a DCM’s consideration of 

whether a crediting program’s 

procedures contemplated validation and 

verification by a ‘‘reputable, 

disinterested’’ party or body, as well as 

reference to a DCM’s consideration of 

whether the crediting program is 

employing ‘‘best practices’’ with respect 

to third-party validation and 

verification.293

The Commission appreciates all of the 

comments that it received on this 

subject. After considering the 

comments, the Commission has 

determined to finalize its guidance with 

respect to inspection provisions as 

proposed, with certain revisions. 

Consistent with the Appendix C 

Guidance, the Commission continues to 

believe that inspection or certification 

procedures for verifying compliance 

with quality requirements or any other 

related delivery requirements for a 

physically-settled VCC derivative 

contract should be specified in the 

contract’s terms and conditions. With 

respect to comments on whether the 

delivery procedures for a physicallysettled VCC derivative contract should 

describe the responsibilities of 

registries, crediting programs or any 

other third parties required to carry out 

the delivery process, the Commission 

reminds exchanges and market 

participants that the Appendix C 

Guidance states that physically-settled 

derivative contracts should, among 

other things, specify appropriately 

detailed delivery procedures ‘‘that 

describe the responsibilities of 

deliverers, receivers, and any required 

third parties in carrying out the delivery 

process.’’ 294 The Commission clarifies 

that, in the specific context of 

physically-settled VCC derivative 

contracts, a registry or crediting program 

may be considered a deliverer, receiver 

or required third party as contemplated 

in the Appendix C Guidance. 

The Commission acknowledges 

comments asserting that a DCM may not 

have the specialized, technical expertise 

to make an independent determination 

regarding the conservativeness, 

robustness, and transparency of a 

crediting program’s validation and 

verification procedures. However, given 

the role played by a crediting program’s 

validation and verification procedures 

in informing the quality of VCCs issued 

by the crediting program, the 

Commission does believe that there 

should be reasonable assurance that the 

program’s validation and verification 

procedures are up-to-date, robust and 

transparent. The Commission believes 

that comments also support a DCM’s 

consideration of whether there is 

reasonable assurance that those 

procedures reflect best practices with 

respect to third-party validation and 

verification. The Commission clarifies 

that, while such best practices with 

respect to third-party validation and 

verification 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, the 

Commission does not expect the DCM 

itself to conduct such reviews or 

implement such procedures. The 

Commission further clarifies that it does 

not expect a DCM to specify, in a VCC 

derivative contract’s terms and 

conditions, or rules, how a registry’s 

Terms of Use address the discussion in 

this guidance of governance, tracking 

and double counting. 

Taking into account comments 

received, the Commission is clarifying 

its view that, as a general matter, 

industry-recognized standards for highintegrity VCCs, and whether a particular 

crediting program has been approved or 

certified as adhering to an industryrecognized standard setting program, 

can serve as tools for a DCM, in 

connection with its consideration of the 

crediting program’s validation and 

verification procedures, including 

whether there is reasonable assurance 

that those procedures reflect best 

practices with respect to third-party 

validation and verification. 


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295See Better Markets at 13. 

296 Iconoclast at 4. 

297BPC at 3. 

298 Id. 

299See 17 CFR 38.252(a). 

300WWF at 1. 

301AFREF at 7; EDF at 2. 

302CEA section 5c(c)(1), 7 U.S.C. 7a–2(c)(1); 17 

CFR 40.2. 

303CEA sections 5c(c)(1) and (5), 7 U.S.C. 7a– 

2(c)(1) and (5). 

304 17 CFR 40.2(a)(3)(v) (for self-certification) and 

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

305BPC at 3. 

306 88 FR 89410 at 89421. CEA section 4(b)(1)(A), 

7 U.S.C. 6(b)(1)(A), provides that the Commission 

may adopt rules and regulations requiring 

registration with the Commission for an FBOT that 

provides the members or other participants located 

in the United States with direct access to the 

Continued 

3. A DCM Shall Monitor a Derivative 

Contract’s Terms and Conditions as 

They Relate to the Underlying 

Commodity Market 

The Commission received a few 

comments regarding the Commission’s 

discussion in the Proposed Guidance of 

considerations for a DCM under DCM 

Core Principle 4. Better Markets 

supported the Commission’s 

proposal.295 Iconoclast stated that 

continual monitoring by the DCM of the 

appropriateness of a VCC derivative 

contract’s terms and conditions should 

include price.296

BPC noted that, given that DCMs ‘‘are 

at their root financial services 

companies,’’ they may not currently 

have ‘‘the in-house scientific or 

technical expertise needed to 

comprehensively evaluate and 

continuously monitor for changes in 

carbon crediting programs that may 

affect the terms and conditions of VCC 

derivative contracts.’’ 297 BPC suggested 

that the ‘‘Commission could consider 

facilitating a community of practice 

among DCMs to encourage sharing of 

best practices and developing common 

evaluation frameworks.’’ 298

The Commission appreciates the 

comments that it received on this 

subject and, after considering the 

comments, has determined to finalize its 

guidance with respect to DCM Core 

Principle 4 as proposed, with one 

revision. The Commission notes that 

implementing Commission regulations 

under DCM Core Principle 4 already 

require a DCM, among other things, to 

monitor a physically-settled derivative 

contract’s terms and conditions as they 

relate to the underlying commodity 

market and to the convergence of the 

contract price and the price of the 

underlying commodity.299 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 

does believe that it is appropriate for a 

DCM’s monitoring of a VCC derivative 

contract to include monitoring of the 

continued appropriateness of the 

contract’s terms and conditions that 

includes, among other things, 

monitoring to ensure that the 

underlying VCC conforms, or, where 

appropriate, updates to reflect the latest 

certification standard(s) applicable for 

that VCC. However, for enhanced 

clarity, the Commission is replacing its 

reference in the guidance to ‘‘continual’’ 

monitoring of a contract’s 

appropriateness, with a reference to 

‘‘ongoing’’ monitoring of such 

appropriateness. 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. 

The Commission further notes that it 

is supportive of exchanges sharing best 

practices for statutory and regulatory 

compliance. 

4. A DCM Must Satisfy the Product 

Submission Requirements Under Part 40 

of the CFTC’s Regulations and CEA 

Section 5c(c) 

Some commenters on the Proposed 

Guidance responded to the 

Commission’s discussion of 

requirements in connection with the 

submission of a VCC derivative contract 

to the Commission under CEA section 

5c(c)(5)(C) and part 40 of the 

Commission’s regulations. WWF 

believed the Commission should 

disallow self-certification of VCC 

derivative contracts ‘‘[d]ue to the 

limited number of voluntary carbon 

credit derivative contracts and the 

newness of this function for the 

CFTC.’’ 300 Similarly, AFREF and EDF 

supported the development by the 

Commission of a ‘‘heightened review 

framework for any self-certified climaterelated products.’’ 301 The Commission 

notes that, with specific limited 

exceptions, the CEA contemplates that a 

DCM may list a new derivative contract 

for trading, or amend an existing 

derivative contract, by way of selfcertification, provided that the DCM 

complies with the substantive and 

procedural requirements set forth in the 

statute and the Commission’s 

implementing regulations, including the 

requirement that the DCM submit 

certain prescribed information to the 

Commission, including but not limited 

to the contract’s terms and 

conditions.302 The Commission notes 

that the CEA also sets forth the standard 

that must be met by the DCM in order 

to list or amend a derivative contract— 

which would include a VCC derivative 

contract—namely, that the contract 

comply with the CEA and the 

regulations thereunder.303

The Commission also received a 

comment regarding the requirement that 

a contract submission to the 

Commission—including a submission 

with respect to a VCC derivative 

contract—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.’’ 304 BPC urged the 

Commission to ‘‘encourage consistency 

across DCMs in their development of 

the required ‘explanation and analysis’ 

of how their VCC derivative contract 

meets . . . this proposed guidance.’’ 305

The Commission notes that each DCM 

has an obligation to ensure, through its 

own review and analysis, that the 

derivative contracts that it seeks to list 

for trading—including any VCC 

derivative contracts—comply with the 

CEA and the regulations thereunder, 

and the DCM’s contract submissions to 

the Commission should reflect this 

review and analysis. That said, by 

outlining certain relevant considerations 

for a DCM in connection with the design 

and listing of a VCC derivative contract, 

the Commission is hopeful that this 

guidance will help to support the 

standardization of such contracts in a 

manner that not only facilitates 

informed evaluations and comparisons 

by market participants, but also fosters 

greater consistency in VCC derivative 

product submissions to the 

Commission. 

The Commission appreciates all of the 

comments that it received on this 

subject. After considering the 

comments, the Commission has 

determined to finalize its guidance 

regarding the product submission 

requirements under part 40 of the 

CFTC’s regulations and CEA section 

5c(c)(5)(C) as proposed. 

5. Foreign Boards of Trade 

The Commission requested comment 

on whether the VCC commodity 

characteristics identified in the 

Proposed Guidance should be 

recognized as being relevant to 

submissions with respect to VCC 

derivative contracts made by a 

registered foreign board of trade 

(‘‘FBOT’’) under CFTC regulation 

§ 48.10.306 Most commenters who 


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electronic trading and order matching system of the 

FBOT, including rules and regulations prescribing 

the procedures and requirements applicable to the 

registration of such FBOTs. CEA section 

4(b)(1)(A)(i) provides that, in adopting such rules 

and regulations, the Commission shall consider, 

inter alia, whether any such FBOT is subject to 

comparable, comprehensive supervision and 

regulation by the appropriate governmental 

authorities in the FBOT’s home country. The 

Commission has adopted rules requiring the 

registration of FBOTs that seek to provide such 

direct access to members or other participants 

located in the United States, which among other 

things prescribe the procedures and requirements 

applicable to registration. These rules are set forth 

at part 48 of the Commission’s regulations. 

Commission regulation § 48.10(a), 17 CFR 48.10(a), 

provides that a registered FBOT that wishes to make 

an additional derivative contract available for 

trading via direct access to members or other 

participants located in the United States must 

submit a written request ‘‘prior to offering the 

contracts within the United States,’’ which must 

include specified information, including the 

contract’s terms and conditions. In general, the 

registered FBOT can make the contract available for 

trading by direct access 10 business days after the 

date of the Commission’s receipt of the written 

request, unless the Commission notifies the FBOT 

that additional time is needed to complete its 

review of policy or other issues pertinent to the 

contract. 

307See, e.g., AFREF at 9; Carbonplace at 3; CEPI 

at 4; Charm at 3; CME at 8; C2ES at 5; IATP at 20; 

ICVCM at 7; NYSSCPA at 3; Public Citizen at 13; 

Xpansiv at 9. 

308Commission regulation § 48.7(c)(1), 17 CFR 

48.7(c)(1), provides, among other things, that that 

derivative contracts to be made available by a 

registered FBOT via direct access to members or 

other participants located in the United States must 

not be readily susceptible to manipulation. As 

discussed herein, DCM Core Principle 3, CEA 

section 5(d)(3), 7 U.S.C. 7(d)(3), provides that a 

DCM must only list derivative contracts that are not 

readily susceptible to manipulation. See also 17 

CFR 38.200 and 38.201. 

309CME at 2. 

310 ICE at 2. The Commission has adopted specific 

requirements for two types of derivative contracts 

offered by registered FBOTs for trading via direct 

access to members and other participants located in 

the United States: linked contracts and certain 

securities-related contracts. Commission regulation 

§ 48.8(c), 17 CFR 48.8(c), imposes notification and 

reporting requirements on registered FBOTs related 

to their offering for trading via direct access of 

contracts that settle to the price of a futures contract 

listed on a DCM (‘‘linked contracts’’). Commission 

regulation § 48.7(c)(2), 17 CFR 48.7(c)(2), provides 

that registered FBOTs may only offer via direct 

access non-narrow-based security index futures and 

option contracts that have been certified by the 

Commission pursuant to Commission regulation 

§ 30.13, 17 CFR 30.13, in accordance with criteria 

set forth in Commission regulation § 40.11, 17 CFR 

40.11. 

311For 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. Unless 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). 

responded were supportive of the VCC 

commodity characteristics being 

recognized as relevant to such FBOT 

submissions.307 For example, after 

noting that both DCMs and registered 

FBOTs are held to a ‘‘not readily 

susceptible to manipulation’’ 

standard,308 CME stated that if the 

Commission’s guidance was intended to 

guard against the listing of contracts 

readily susceptible to manipulation, 

then the scope of the guidance should 

extend to FBOTs.309 Conversely, one 

commenter stated that it did not support 

the application of the Commission’s 

guidance to contract submissions by 

registered FBOTs. ICE stated that under 

the Commission’s framework for 

registered FBOTs, the exchange’s home 

country regulator is generally tasked 

with the primary oversight of the 

FBOT’s contract terms.310

The Commission appreciates all of the 

comments that it received on this 

subject. The Commission acknowledges 

efforts that have been made across 

jurisdictions—by governmental bodies, 

private sector and multilateral 

initiatives, and derivative exchanges 

themselves—to support transparent 

markets for high-integrity VCCs. The 

Commission recognizes that its 

counterparts in other jurisdictions have 

similar regulatory interests in the 

manner in which VCC derivatives, as a 

product class, evolve—as well as in 

ensuring, more generally, that the 

financial markets that they oversee are 

liquid, fair, and stable, and free from 

manipulation and other abusive trading 

practices. The Commission further 

recognizes that, given the global nature 

of financial markets—including 

voluntary carbon markets—international 

coordination is critical to support 

market integrity. The Commission looks 

forward to continuing to coordinate 

with its regulatory counterparts on 

efforts to promote the integrity and 

orderly functioning of voluntary carbon 

markets, including markets for VCC 

derivative contracts. 

III. Guidance Regarding the Listing of 

VCC Derivative Contracts 

The Commission is issuing guidance 

that outlines factors for consideration by 

DCMs 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, and believes that guidance 

that outlines factors for a DCM to 

consider in connection with the contract 

design and listing process may help to 

advance the standardization of such 

products in a manner that promotes 

transparency and liquidity. 

This guidance does not establish new 

obligations for DCMs. Unlike a binding 

rule adopted by the Commission, which 

would state with precision when 

particular requirements do and do not 

apply to particular situations, this 

guidance is a statement of the 

Commission’s views regarding factors 

that may be relevant in its evaluation of 

DCM compliance, and allows for 

flexibility in application to various 

situations, including consideration of all 

relevant facts and circumstances, 

whether or not explicitly discussed in 

the guidance. The Commission intends 

for this guidance to be an efficient and 

flexible vehicle to communicate the 

agency’s current views, in order to give 

DCMs the benefit of the Commission’s 

thinking as they address their Core 

Principle and regulatory compliance 

obligations.311

This guidance is not intended to 

modify or supersede existing 

Commission guidance that addresses the 

listing of derivative contracts by CFTCregulated exchanges, including the 

Appendix C Guidance. Rather, taking 

into account certain unique attributes of 

VCC derivatives and voluntary carbon 

markets, this guidance outlines 

particular matters for consideration by a 

DCM when designing and listing a VCC 

derivative contract. Among other things, 

this guidance addresses how certain 

aspects of the Appendix C Guidance 

may be considered in the specific 

context of VCC derivative contracts. 

This 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 that can help 

to ensure that, upon delivery, the 

quality and other attributes of VCCs 

underlying a derivative contract 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 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 settlement 

price would include rules that fully 

describe the essential economic 


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312Appendix C Guidance, paragraph (c)(1). 

313As noted herein, and for the avoidance of 

doubt, this 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 

guidance. DCMs are reminded to consult and 

consider the Appendix C Guidance when 

developing rules, terms and conditions, and 

contract submissions to the Commission, for all 

derivative product types—including VCC derivative 

products. 

314As noted above, the Appendix C Guidance is 

also relevant for 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 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 

through 37.408. 

315See 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). 

316For example, the Commission may in the 

future revisit this guidance, or issue additional 

guidance, to further address the listing of cashsettled VCC derivative contracts, including indexbased contracts, or to further address the listing of 

VCC derivative contracts by SEFs. 317For the avoidance of doubt, this 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). 

318CEA section 5(d)(3), 7 U.S.C. 7(d)(3). 319 17 CFR part 38, appendix C. 320See also section I.A., supra. As noted above, 

the Appendix C Guidance is also relevant to SEFs, 

which are similarly obligated by statute only to 

permit trading in derivative contracts that are not 

readily susceptible to manipulation. CEA section 

5h(f)(3); 7 U.S.C 7b–3(f)(3). 

321Appendix C Guidance, paragraph (b)(2)(i)(A). 322 Id. 

characteristics of the underlying 

commodity.312 Accordingly, the 

Commission believes that discussions in 

this guidance of VCC commodity 

characteristics for consideration by a 

DCM in connection with the design and 

listing of a physically-settled VCC 

derivative contract, would also be 

relevant for cash-settled derivative 

contracts that settle to the price of a 

VCC, unless otherwise noted.313

Further, while this guidance focuses 

on the listing of VCC derivative 

contracts by DCMs, the Commission 

believes that the factors outlined for 

consideration also would be relevant for 

consideration 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.314

In developing this guidance, the 

Commission has considered those 

public comments on the RFI on ClimateRelated Financial Risk that addressed 

product innovation and voluntary 

carbon markets, as well as comments 

received in response to the Proposed 

Guidance. Taking into account these 

comments, the Commission believes 

that this 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.315

The Commission recognizes that VCC 

derivative products 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,316 as VCC derivative products 

and voluntary carbon markets continue 

to develop and mature.317

A. A DCM Shall Only List Derivative 

Contracts That Are Not Readily 

Susceptible to Manipulation 

DCM Core Principle 3 provides that a 

DCM shall only list for trading 

derivative contracts that are not readily 

susceptible to manipulation.318 With 

respect to DCM Core Principle 3, the 

Appendix C Guidance (‘‘Demonstration 

of Compliance That a Contract is Not 

Readily Susceptible to 

Manipulation’’) 319 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.320

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.321 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.’’ 322

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 believes that a DCM 

should take these characteristics— 

referred to in this 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. 

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 settlement. The Commission 

believes that consideration of these 

characteristics will assist the DCM in 

understanding key attributes of the 

commodity—the VCC—that underlies 

the derivative contract. 

More specifically, the Commission 

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 for a DCM to consider 

addressing in the terms and conditions 

of a physically-settled derivative 

contract. As discussed above, 

addressing these three criteria clearly in 


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323As is the case for physically-settled VCC 

derivative contracts, the Commission believes that 

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. 

324The 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. 

325See Joint Policy Statement on Voluntary 

Carbon Markets, U.S. Department of the Treasury, 

May 2024, available at: https://home.treasury.gov/ 

system/files/136/VCM-Joint-Policy-Statement-andPrinciples.pdf. 

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. 

The Commission believes that, as a 

general matter, industry-recognized 

standards for high-integrity VCCs can 

serve as tools for DCMs, in connection 

with their consideration, with respect to 

a particular crediting program, of the 

VCC commodity characteristics outlined 

in this guidance. Where a crediting 

program for VCCs that are eligible for 

delivery under a derivative contract has 

been approved or certified by an 

industry-recognized standards program 

for high-integrity VCCs, the DCM should 

consider clearly identifying the 

standards program in the contract terms 

and conditions, along with the crediting 

program itself. 

1. Quality Standards 

The Commission believes that a DCM 

should consider the following VCC 

commodity characteristics when 

addressing quality standards in 

connection with the design of a VCC 

derivative contract: (i) transparency, (ii) 

additionality, (iii) permanence and risk 

of reversal, and (iv) robust 

quantification.323

The Commission also understands 

that the measures that a crediting 

program has in place with respect to 

social and environmental safeguards, 

and net zero alignment, may have a 

bearing on how market participants 

evaluate the quality of the VCCs that are 

issued by the crediting program. In light 

of this, a DCM may determine that it is 

appropriate to consider, when 

addressing quality standards in 

connection with derivative contract 

design, whether the crediting program 

for underlying VCCs has implemented 

measures to help ensure that credited 

mitigation projects or activities: (i) meet 

or exceed best practices on social and 

environmental safeguards, and (ii) 

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. 

i. 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 physically-settled VCC derivative 

contract, information about the VCCs 

that are eligible for delivery under the 

contract. The contract terms and 

conditions should clearly identify what 

is deliverable under the contract, 

including by providing information that 

readily specifies the crediting program 

or programs from which underlying 

VCCs may be issued. To the extent that 

underlying VCCs are associated with a 

specific category of mitigation project or 

activity—such as nature-based projects 

or activities—this also should be readily 

evident from the contract’s terms and 

conditions. 

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 believes that, when 

designing a VCC derivative contract, 

DCMs should also consider whether the 

crediting program for underlying VCCs 

is making detailed information about its 

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. 

ii. Additionality 

The Commission believes that, in 

connection with the design of a VCC 

derivative contract, a DCM should 

consider whether the crediting program 

for underlying VCCs has procedures in 

place to assess or test for additionality. 

Additionality is recognized by many as 

an important element of a high-quality 

VCC. 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 derivative 

contract may not accurately reflect the 

quality of the VCCs that may be 

delivered under the contract. The 

cheapest-to-deliver VCC,324 that 

otherwise meets the contract’s 

specifications, may not have 

additionality. Accordingly, the 

Commission believes the DCM should 

consider whether the procedures that a 

crediting program has in place to assess 

or test for additionality provide 

reasonable assurance that GHG emission 

reductions or removals will be credited 

only if they are additional. 

While additionality is recognized by 

many as an important element of a highquality VCC, the Commission 

understands that there currently is 

variation across the voluntary carbon 

markets in how, precisely, additionality 

is characterized. For example, an 

assessment of additionality may focus 

on whether 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. Alternatively or additionally, an 

assessment of additionality may focus 

on whether 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, or on other approaches 

such as performance standard 

approaches.325 The Commission 

understands that the factors that inform 

an assessment of additionality also may 

vary depending on the type of 

mitigation project or activity in issue, 

and that, as the voluntary carbon 

markets continue to develop, industry 

consensus on how to characterize and 

assess additionality may evolve. 

In recognition of the foregoing, the 

Commission is not providing in this 

guidance a definition of additionality. 

The Commission believes that, as a 

general matter, industry-recognized 


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326Related specifically to the agriculture and 

forest sector, the Office of Management and Budget, 

the White House Office of Science and Technology 

Policy, and White House Office of Domestic Climate 

Policy announced the release of the National 

Strategy to Advance an Integrated U.S. Greenhouse 

Gas Measurement, Monitoring, and Information 

System, a Strategy developed by the Greenhouse 

Gas Monitoring and Measurement Interagency 

Working Group (‘‘GHG IWG’’) to enhance 

coordination and integration of greenhouse gas 

measurement, monitoring, and information efforts 

across the Federal government. The GHG IWG 

issued this Federal Strategy on November 29, 2023, 

available at: https://www.whitehouse.gov/ostp/ 

news-updates/2023/11/29/national-strategy-toadvance-an-integrated-u-s-greenhouse-gasmeasurement-monitoring-and-information-system/. 

327CEA section 5(d)(5), 7 U.S.C. 7(d)(5). See also 

17 CFR 38.300 and 38.301. 

328 Guidance on estimating deliverable supply 

can be found in the Appendix C Guidance. 

329For 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. 

330Appendix C Guidance, paragraph (b)(2)(i)(B). 

331While cash-settled VCC derivative contracts 

do not result in the delivery of a VCC, the 

Commission 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. 

standards for high-integrity VCCs can 

serve as tools for a DCM, in connection 

with its consideration of a particular 

crediting program’s characterization of 

additionality, as well as the DCM’s 

consideration of whether the crediting 

program’s procedures to assess or test 

for additionality provide reasonable 

assurance that GHG emission reductions 

or removals will be credited only if they 

are additional, as so characterized. 

iii. Permanence and Accounting for the 

Risk of Reversal 

The Commission believes that, in 

connection with the design of a VCC 

derivative contract, a DCM should 

consider whether the crediting program 

for underlying VCCs 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). 

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 

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. 

The crediting program’s measures to 

address and account for the risk of 

reversal may be particularly important 

where underlying VCCs are issued for 

project or activity types with a higher 

reversal risk. 

Most crediting programs have 

established VCC ‘‘buffer reserves’’ to 

help 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 and cancelled, proportional 

to the magnitude of the reversal. A DCM 

should consider whether a crediting 

program has a buffer reserve in place to 

help address the risk of reversal. 

Relevant considerations with respect to 

a crediting program’s buffer reserve 

could include whether the crediting 

program regularly reviews the 

methodology by which the size of its 

buffer pool is calculated in order to 

address evolving developments that 

may heighten reversal risk, and whether 

there is a mechanism in place to audit 

the continuing sufficiency of the buffer 

reserve. The Commission recognizes, 

however, that a crediting program may, 

now or in the future, have measures 

other than, or in addition to, a buffer 

reserve to address the risk of reversal. 

This guidance contemplates that a DCM 

should consider whether a crediting 

program has a buffer reserve and/or 

other measures in place to address such 

risk. 

iv. Robust Quantification—GHG 

Emission Reductions or Removals 

Should Be Conservatively Quantified 

Given the current absence of a 

standardized methodology or protocol 

to quantify GHG emission reduction or 

removal levels 326—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, in connection with the design of a 

VCC derivative contract, a DCM should 

consider whether there is reasonable 

assurance that the quantification 

methodology(ies) or protocol(s) used by 

the crediting program for calculating 

emission reductions or removals for 

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. 

Moreover, the Commission notes that 

for the derivative contracts that they list, 

DCMs are required to adopt, as is 

necessary and appropriate, exchange-set 

position limits for speculators.327 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.328 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.329

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.330 When addressing 

delivery procedures in connection with 

the design of a physically-settled VCC 

derivative contract, the Commission 

believes that a DCM should consider the 

governance framework and tracking 

mechanisms of the crediting program for 

underlying VCCs, as well as the 

crediting program’s measures to prevent 

double counting.331

i. Governance 

The Commission believes that a DCM 

should consider whether the crediting 

program for underlying VCCs has in 

place a governance framework that 

supports the crediting program’s 

independence, transparency and 

accountability. As a threshold matter, a 

governance framework that supports 

independence, transparency and 


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332Appendix C Guidance, paragraph (b)(2)(i)(G) 

(noting that 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). 

333 Id. 334CEA section 5(d)(4), 7 U.S.C. 7(d)(4). See also 

17 CFR 38.250 through 38.258. 335 17 CFR 38.252. 336The Commission has, similarly, recognized 

that a DCM has a responsibility to monitor the 

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. 

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 facilitate the physical 

settlement of a VCC derivative contract. 

Relevant factors when considering a 

crediting program’s governance 

framework could include, among other 

things, the program’s decision-making 

procedures, including who is 

responsible for administration of the 

program and conflict of interest 

measures such as how the 

independence of key functions is 

ensured; reporting and disclosure 

procedures; public and stakeholder 

engagement processes, including 

whether there are appeals mechanisms; 

and risk management policies, such as 

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

policies. A DCM should consider 

whether detailed information regarding 

a crediting program’s governance 

framework, such as information 

regarding the above-described 

procedures and policies, is made 

publicly available. 

ii. Tracking 

The Commission believes that a DCM 

should consider whether the crediting 

program for the underlying VCCs 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, and 

whether there is reasonable assurance 

that the registry has effective measures 

in place to 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. 

iii. No Double-Counting 

The Commission believes that a DCM 

should consider whether the crediting 

program for the underlying VCCs has 

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; a crediting program 

should have 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 derivative 

contracts should be specified in the 

contract’s terms and conditions.332 The 

Commission believes that these 

inspection or certification procedures 

should be consistent with the latest 

procedures in the voluntary carbon 

markets. 

Additionally, the Commission 

believes that, when designing a VCC 

derivative contract, a DCM should 

consider whether there is reasonable 

assurance that the crediting program for 

underlying VCCs has up-to-date, robust 

and transparent procedures for 

validating and verifying that credited 

mitigation projects or activities meet the 

crediting program’s rules and standards. 

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.333

Accordingly, a DCM should consider 

whether there is reasonable assurance 

that the crediting program’s procedures 

reflect best practices with respect to 

third party validation and verification. 

Such best practices may include: 

crediting program reviews of the 

performance of its 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.334 For physicallysettled derivative contracts, 

implementing Commission regulations 

under DCM Core Principle 4 require a 

DCM, among other things, to monitor 

the contract’s terms and conditions as 

they relate to 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.335 Such monitoring will 

help a DCM identify circumstances that 

may cause the contract to become 

susceptible to price manipulation or 

distortions, and 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.336


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Federal Register / Vol. 89, No. 199 / Tuesday, October 15, 2024 / Rules and Regulations 83405 

continued appropriateness of the terms and 

conditions of a cash-settled derivative contract. See, 

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

337 17 CFR 38.254(a). 

338 Id. 

339SEFs 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). 

340CEA 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). 341CEA sections 5c(c)(4) and (5), 7 U.S.C. 7a– 

2(c)(4) and (5). See also 17 CFR 40.3. 342 17 CFR 40.2 and 40.3. 343 17 CFR 40.5 and 40.6. 344 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. 

345 17 CFR 40.2(a)(3)(v) (for self-certification) and 

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

346 17 CFR 40.2(b) (for self-certification) and 

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

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 believes that the 

monitoring by a DCM of the terms and 

conditions of a physically-settled VCC 

derivative contract should include 

ongoing 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.337 A DCM’s rules 

also must require market participants to 

make such records available upon 

request to the DCM.338 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.339 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.340

Alternatively, the DCM may elect 

voluntarily to seek prior Commission 

approval of the contract.341 In each case, 

the DCM must submit prescribed 

information to the Commission, 

including but not limited to the 

contract’s terms and conditions.342

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.343

This 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 the contract’s compliance 

with applicable provisions of the CEA, 

including core principles and the 

Commission’s regulations 

thereunder.344 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.345

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.346

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 complies with 

the CEA and applicable Commission 

regulations, will be complete and 

thorough. This is especially important 

given unique and developing aspects of 

VCCs and VCC derivative markets. 

Including complete and thorough 

information 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. 

Issued in Washington, DC, on October 2, 

2024, 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— 

Voting Summary and Chairman’s and 

Commissioner’s Statements 

Appendix 1—Voting Summary 

On this matter, Chairman Behnam and 

Commissioner Goldsmith Romero voted in 

the affirmative. Commissioners Johnson and 

Pham voted to concur. Commissioner 

Mersinger voted in the negative. 

Appendix 2—Statement of Support of 

Chairman Rostin Behnam 

The Commission’s final guidance for 

designated contract markets (DCMs or 

Contract Markets) that list derivatives on 

voluntary carbon credits (VCCs) as the 

underlying commodity is a critical step in 

support of the development of high-integrity 

voluntary carbon markets (VCMs). For the 

first time ever, a U.S. financial regulator is 


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83406 Federal Register / Vol. 89, No. 199 / Tuesday, October 15, 2024 / Rules and Regulations 

1See, e.g., CFTC, Event: Advisory Committee 

Meetings, CFTC’s Market Risk Advisory Committee 

to Meet June 12 to Discuss Climate-related 

Financial Risk (Jun. 12, 2019), https://www.cftc.gov/ 

PressRoom/Events/opaeventmrac051219. 2Managing Climate Risk in the U.S. Financial 

System, Report to the CFTC’s Market Risk Advisory 

Committee by the Climate-Related Market Risk 

Subcommittee (Sept. 2020), https://www.cftc.gov/ 

sites/default/files/2020-09/9-9-20%20Report%20

of%20the%20Subcommittee%20on%20ClimateRelated%20Market%20Risk%20-%20Managing%

20Climate%20Risk%20in%20the%20U.S.%20

Financial%20System%20for%20posting.pdf. 

3See Press Release Number 8368–21, CFTC 

Acting Chairman Behnam Creates New Climate Risk 

Unit (Mar. 17, 2021), https://www.cftc.gov/ 

PressRoom/PressReleases/8368-21. 

4CFTC, 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/opaeventvoluntary

carbonmarkets071923. 

5Request 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. 

6Proposed Commission Guidance Regarding the 

Listing of Voluntary Carbon Credit Derivative 

Contracts and Request for Comment, 88 FR 89410 

(Dec. 27, 2023), https://www.cftc.gov/sites/default/ 

files/2023/12/2023-28532a.pdf; See comment file 

available at https://comments.cftc.gov/Public

Comments/CommentList.aspx?id=7463&ctl00_

ctl00_cphContentMain_MainContent_gvComment

ListChangePage=1_50. 

7See, 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. 

8 International Organization of Securities 

Commissions (IOSCO), CR06/2023 Voluntary 

Carbon Markets, Consultation Report (Dec. 2023), 

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

IOSCOPD749.pdf. 

issuing regulatory guidance for contract 

markets that list financial contracts aimed at 

providing tools to manage risk, promote price 

discovery, and foster the allocation of capital 

towards decarbonization efforts. 

The publication of this final guidance 

marks the culmination of over five years 1 of 

work with a diverse group of market 

participants, including agricultural 

stakeholders, ranchers, foresters, landowners, 

commercial end users, energy market 

stakeholders, emission-trading focused 

entities, carbon-credit rating agencies, 

crediting programs, CFTC-registered 

exchanges and clearinghouses, public 

interest groups, academics, and others. This 

guidance also represents a whole-ofgovernment approach in coordination with 

our partners across the U.S. federal complex. 

Each step has been intentional. I sponsored 

the Market Risk Advisory Committee’s 

Climate-Related Market Risk Subcommittee, 

which issued a first-of-its-kind report on 

Managing Climate Risk in the U.S. Financial 

System in September 2020, that identified 

pricing carbon as a fundamental element for 

financial markets to efficiently allocate 

capital to reduce greenhouse gas emissions 

(GHGs).2 I established the CFTC’s Climate 

Risk Unit in March 2021 to support the 

Commission’s building of subject matter 

expertise through external engagement, 

cooperation, and coordination regarding the 

role that climate-related derivatives play in 

pricing and managing climate-related 

financial risk.3 I hosted two Voluntary 

Carbon Markets Convenings in June 2022 and 

July 2023 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 underlying VCC cash 

markets.4 The CFTC issued a Request for 

Information on Climate-Related Financial 

Risk in June 2022 that received 80 comments 

on ten priority areas of interest including 

VCMs and product innovation.5 The 

Commission then issued proposed guidance 

with a request for public comment in 

December 2023, that received over 85 

comments,6 the majority of which generally 

supported the proposal. 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 marketbased solutions.7

The primary takeaway from this research, 

public engagement, and consultation 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 underlying voluntary carbon 

credits that are real, additional, permanent, 

verifiable, and each represent a unique 

metric ton of GHG emissions reduced or 

removed from the atmosphere. 

While VCC derivatives are a comparatively 

new and evolving class of products, Contract 

Markets must ensure that any listed 

derivatives comply with the CEA and 

Commission regulations. The guidance 

outlines factors that Contract Markets may 

consider in connection with the VCC 

derivative contract design and listing process 

including: Core Principle 3, which requires 

Contract Markets to list only contracts that 

are not readily susceptible to manipulation; 

Core Principle 4, which requires Contract 

Markets 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 Core Principles; and the product 

submission provisions set forth in CEA 

section 5c(c) and part 40 of the Commission 

regulations. 

The guidance is not intended to modify or 

supersede existing statutory or regulatory 

requirements, or existing Commission 

guidance that addresses a Contract Market’s 

listing of derivative contracts, such as 

appendix C to part 38 of the Commission’s 

regulations. Instead, the guidance outlines 

VCC characteristics for a Contract Market to 

consider in connection with the contract 

design and listing process for VCC 

derivatives to address certain requirements 

under the CEA and the Commission’s rules. 

These voluntary carbon credit 

characteristics are: (i) transparency, 

additionality, permanence and accounting for 

the risk of reversal, and robust quantification 

of emissions reductions or removals, for 

consideration when addressing quality 

standards; (ii) governance, tracking 

mechanisms, and measures to prevent double 

counting, for consideration when addressing 

delivery procedures; and (iii) third-party 

validation and verification, for consideration 

when addressing inspection or certification 

procedures. A Contract Market’s 

consideration of these characteristics in 

connection with the design of the contract 

and the listing process should promote 

accurate pricing, reduce susceptibility of the 

contract to manipulation, help prevent price 

distortions, and foster confidence in the 

voluntary carbon credit contracts. Consistent 

with the current statutory and regulatory 

requirements, Contract Markets would retain 

reasonable discretion to comply with the 

DCM Core Principles and the Commission’s 

regulations. 

This guidance is the product of a strong 

public-private partnership that I have strived 

to achieve with both the CFTC’s traditional 

stakeholders, as well as a variety of new 

stakeholders, including carbon market 

participants to support transparency, 

liquidity, market integrity, and ultimately 

scale in these markets. Today’s guidance 

outlines well-researched VCC commodity 

characteristics that build on several mature 

private sector and multilateral initiatives that 

have made great strides to strengthen VCC 

credit integrity standards through technical 

analysis, expertise, and broad coalition 

building. With the benefit of public 

comment, the CFTC’s final guidance 

specifically recognizes that private sector 

recognized standards for high-integrity VCCs 

can serve as tools for CFTC Contract Markets 

in connection with their consideration of the 

VCC commodity characteristics. 

Recognizing the global nature of 

derivatives markets, the VCC guidance 

complements the important work underway 

by the International Organization of 

Securities Commissions (IOSCO) through its 

Sustainable Finance Task Force’s Carbon 

Market Workstream, which I am leading with 

Verena Ross, the Chair of the European 

Securities and Market Authority. While this 

Commission guidance focuses on what 

Contract Markets may consider in designing 

and monitoring their proprietary listed VCC 

derivative contracts, IOSCO’s work over 

nearly three years has been focused on how 

regulators can promote sound market 

structure and enhance financial integrity in 

the VCMs so that high-quality carbon credits 

can be traded in an orderly and transparent 

way. IOSCO is hard at work reviewing the 

many helpful comments received in response 

to the December 2023 VCM Consultation 

Report. I am looking forward to the next 

deliverable of that workstream, which is 

expected later this year.8

The CFTC’s unique mission focused on 

risk mitigation and price discovery puts us 

on the front lines of the now global nexus 


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Federal Register / Vol. 89, No. 199 / Tuesday, October 15, 2024 / Rules and Regulations 83407 

1This statement will refer to Commission 

Guidance Regarding the Listing of Voluntary 

Carbon Credit Derivative Contracts as ‘‘VCC 

Guidance.’’ 2This statement will refer to the Commodity 

Futures Trading Commission as the ‘‘Commission’’, 

‘‘CFTC’’, or ‘‘Agency.’’ All web pages cited herein 

were last visited on September 16, 2024. 3CME Group response to Request for Comment 

on Commission Guidance Regarding the Listing of 

Voluntary Carbon Credit Derivative Contracts, at 5. 

4CFTC Announces Second Voluntary Carbon 

Markets Convening (July 19, 2023) available at: 

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

voluntarycarbonmarkets071923; CFTC Release 

Number 8736–23 (‘‘CFTC Division of Enforcement 

Creates Two New Task Forces’’) (June 29, 2023) 

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

PressReleases/8736-23; CFTC Whistleblower Alert, 

(June 20, 2023) available at: https://

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

2023-06/06.20.23%20Carbon%20Markets

%20WBO%20Alert.pdf. 

5 VCC Guidance at page 27. 6 VCC Guidance at page 39. 

between financial markets and 

decarbonization efforts. Leveraging the 

CFTC’s personnel and expertise demonstrates 

our commitment to taking a thoughtful and 

deliberate step toward building a financial 

system that provides effective tools in 

achieving emission reductions. 

I thank my fellow commissioners for 

enabling the Commission to issue this final 

guidance. I greatly appreciate the expertise 

and the tremendous work done by staff in the 

Division of Market Oversight, the Office of 

the General Counsel, and in my office on this 

final guidance. 

Appendix 3—Dissenting Statement of 

Commissioner Summer K. Mersinger 

Today’s non-binding VCC Guidance 1 to 

designated contract markets (‘‘DCMs’’) 

regarding listing of voluntary carbon credits 

(‘‘VCCs’’) derivative contracts is a solution in 

search of a problem. The Commodity Futures 

Trading Commission 2 has no shortage of 

topics that warrant our immediate attention. 

But instead of addressing those, we are 

issuing guidance on an emerging class of 

products that have very little open interest 

and comprise a miniscule percentage of 

trading activity on CFTC-regulated DCMs.3

In addition to issuing the VCC Guidance, 

the Commission has held multiple 

‘‘convenings,’’ and the Division of 

Enforcement established a task force and 

issued a Whistleblower Office alert.4 I 

question whether any other class of 

derivative products has received the outsized 

attention that VCC derivative contracts have 

received from the CFTC. 

Guidance can play an important role in 

providing clarity and fostering transparency 

regarding rules that are complex and open to 

interpretation. That is why the Commission 

published existing guidance to DCMs 

through appendices B and C to part 38 of the 

Commission’s regulations. But this new VCC 

Guidance on a singular class of derivatives 

contracts does very little to provide clarity, 

and it most certainly does nothing to foster 

transparency. Because the VCC Guidance is 

just guidance, it ‘‘does not establish new 

obligations for DCMs.’’ 5 So why are we 

engaged in a non-binding exercise that does 

little to provide clarity, does not foster 

transparency, and does not establish new 

obligations? It seems the only explanation is 

to set the stage for the Commission to 

promote a political agenda. 

The VCC Guidance includes veiled 

attempts to propagate controversial political 

ideologies best left to debate by voters and 

elected officials. Specifically, the VCC 

Guidance states that, ‘‘a DCM may determine 

that it is appropriate, when addressing 

quality standards in connection with 

derivative contract design, to consider 

whether the crediting program for underlying 

VCCs has implemented measures to help 

ensure that credited mitigation projects or 

activities (i) meet or exceed best practices on 

social and environmental safeguards, and (ii) 

would avoid locking in levels of [greenhouse 

gas] emissions, technologies or carbon 

intensive practices that are incompatible 

with the objective of achieving net zero 

[greenhouse gas] emissions by 2050.’’ 6

Environmental and Social Governance 

(ESG) compliance and Net—Zero goals are 

completely immaterial to the ability of the 

listed derivatives products to meet their 

regulatory obligations. Focusing on ESG and 

Net Zero in evaluating derivatives contracts 

is a backdoor attempt to inject and 

memorialize certain political ideologies into 

CFTC regulatory decisions. 

The Commission should evaluate VCC 

derivative products as we would any other 

derivative product listed by a DCM, and we 

should regulate a DCM listing VCC derivative 

products the same way we regulate DCMs 

listing other derivatives products. Our 

outsized focus on the VCC derivative 

products and the underlying VCC markets 

looks a lot more like promotion of ideology 

than simply offering guidance. For these 

reasons, I respectfully dissent. 

[FR Doc. 2024–23105 Filed 10–11–24; 8:45 am] 

BILLING CODE 6351–01–P 


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