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The following comment was submitted to the Commodity Futures Trading Commission in response to its Request for Information on Climate Related Financial Risk on October 7, 2022. 


The Institute for Agriculture and Trade Policy (IATP) appreciates the opportunity to respond to some of the RFI questions. Save for a July 13 letter concerning nominations to and topics for the Energy and Environmental Markets Advisory Committee, IATP last wrote to the Commission about climate-related financial risk in a co-authored September 22, 2021, letter. Although the RFI does not state that information received may be used in a CFTC study of compliance and voluntary carbon markets, we reiterate here our call for such a study, with an opportunity for the public to provide input and comment on the study. As we wrote then, "It has been 10 [now 11] years since the CFTC led an interagency study of carbon markets; since then, they have expanded dramatically and are expected to continue expanding as increasing numbers of companies make pledges to achieve ‘net-zero’ GHG emissions using offsets." (p. 2) The recommended study will provide an important foundation for any future Commission action on compliance and voluntary carbon markets.

The relation between emissions offset market expansion and contention over the terms of the pledges is politically and economically fraught. For example, members of the High-Level Expert Panel of the United Nations Race to Zero campaign have been threatened with lawsuits for advising that the Race cannot be won without phasing out and down the use of fossil fuels. A detailed analysis of 25 major corporations' net zero commitments reported, "Collectively, the 25 companies specifically commit to reducing only less than 20% of their 2.7 GtCO2e emission footprint [in 2019], by their respective headline target years [2030 to 2050] (Figure S1)." Such commitments are far from what is required for net zero corporate commitments to contribute proportionately to preventing the 1.5C overshoot, as computer modeled by the Intergovernmental Panel on Climate Change (IPCC).

The Commission does not have, of course, any authority to evaluate the integrity of net zero pledges nor to limit the use of offset spot and derivatives contracts to achieve those pledges. However, marketing materials reference the use of offset credits to achieve corporate publicized net zero targets. Critics have charged that that the use of low integrity offset credits to make net zero emissions claims amounts to little more than "greenwashing," e.g., misrepresenting a company's Environmental Social and Governance (ESG) qualifications. Greenwashing litigation concerning ESG claims has given rise to Securities and Exchange Commission rulemaking on climate-related financial risk disclosures. 

The Commission should become familiar with the terms of net zero corporate standards, such as those of the Science Based Targets Initiative (SBTi), and SBTi limits on the use of offsets to achieve net zero commitments. The misrepresentation of emissions reductions claimed for offset contracts might result in litigation that will require an understanding of market participant net zero claims and the use of offsets to meet net zero targets. The Commission study that we have recommended should outline the net zero claims context of the use of offset contracts to better understand the market pressures that could lead to misuse, e.g., trading contracts that misrepresent emissions avoided, reduced or removed to achieve net zero commitments. Such misrepresentation may indicate that an offset contract is susceptible to market manipulation, in violation of Core Principle 3.

We will return to answer the RFI questions (22-24) bearing directly on VCMs. (IATP is a signatory to the Americans for Financial Reform letter on VCMs.) However, the Commission has asked a broad range of questions about climate-related financial risk and the derivatives markets. We will respond to some of those questions in the order they are asked. Our letter concludes with proposals on how the Commission might respond to the Financial Stability Oversight Council's recommendations in FSOC's "Climate Related Financial Risk Report." (Federal Register, p. 34857)

To continue reading, please download a PDF of the letter

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