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The following comment was submitted electronically to the International Organization of Securities Commissions (IOSCO) on February 10, 2023 regarding the IOSCO report “Voluntary Carbon Markets – Discussion Report” (“VCM Paper”). Download a PDF of the comment here.


Dear Mr. Nathanail, 

The Institute for Agriculture and Trade Policy (IATP)1 appreciates the opportunity to comment on the IOSCO VCM Paper. IATP last wrote to IOSCO in 2015 concerning its Consultation Report on cross-border trading.2 The VCM Paper asks for comment on Interoperability Considerations. We will comment additionally on Cross-Border Trading Considerations because there are cross-border trading issues not captured in the interoperability framework.



Regulation confers legitimacy on new products and new markets. Consumers of new financial products assume that such products have been reviewed impartially by regulators, e.g., to determine if they are susceptible to manipulation or fraud. Much of the VCM Paper concerns how existing IOSCO principles and best practices might be adapted to provide VCMs a regulatory framework, but apparently without fundamentally altering the private and voluntary structure of VCMs.3 Remarkably, considering the value of regulation to financial intermediation4, VCM proponents are resisting “too much” regulation, with the risk that regulators might unduly delegate their authorities to private entities.  

In May 2022, the U.S. Commodity Futures Trading Commission (CFTC) released a Request for Information (RFI) regarding the impact of climate change on derivatives markets, trading platforms and market participants.  Major industry organizations warned, as if in unison, that the CFTC should not regulate VCMs while the VCM trading instruments, industry standards and markets were still maturing (about 25 years after the Kyoto Protocol authorized trade in cross-border emissions offset contracts). For example, the Chicago Mercantile Exchange Group wrote,  

[t]he Climate RFI suggests a focus on the regulatory role for the Commission in the voluntary carbon markets. The voluntary carbon markets are still evolving and striving to reach a mature state. An overly proscriptive approach to the development of the voluntary carbon markets could have the effect of impeding the promise these markets offer to assist the larger community in reaching global emissions reduction targets.5 

To judge by the remainder of the CME Group letter, “overly proscriptive measures” would include “a reporting requirement which includes the climate-related aspects of listed derivative products and transactions . . . there is a lack of uniformity and constantly evolving standards which would make a required disclosure regime burdensome and extremely difficult to implement.”6 Insofar as these “climate related aspects of listed derivatives products and transactions” include emissions offset derivatives and their underlying assets, according to the CME Group, the regulator’s role in the anticipated growth of VCMs is to wait for the private sector to deliver uniform standards that are not constantly evolving and then wait to see how the market grows under those standards before the regulator contemplates any rules or non-binding guidance to industry about VCMs.  

For reasons we outline below, it would be imprudent for IOSCO’s members to wait and see if the long-hoped-for promise of VCMs finally came to fruition as the result of widespread implementation of private standards, contracts and trading platform infrastructure for executing and clearing VCM transactions. The assumption that climate change is the result of a market failure that can be corrected in part by carbon credit trading does not consider the consequences of carbon trading failure to reduce emissions. Eli Mitchell-Larson, a scientific advisor to the Task Force on Scaling Voluntary Carbon Markets (TSVCM) outlined these consequences: “If they [emissions offset credits] generate a lower carbon benefit than they claim and the company is still emitting, well then you end up with more emissions than you would have otherwise,” said Mitchell-Larson. “We have to be open to the idea that the voluntary market might fail.”7   

As a macro-prudential measure, IOSCO should recommend to its members that they study under what conditions VCMs might fail and what the consequences of such failure for their members’ jurisdictions might be. There are numerous econometric projections of a carbon price boom that likely will create a “gold rush” mentality in offset trading.8 IOSCO, as an intergovernmental organization of regulators, should not be in the business of boosting a boom. Instead, IOSCO should provide objective information to its members about the risks of VCMs, as well as the already and much publicized investment opportunities. Consistent with the prudential obligations of derivatives regulators, IOSCO should inform its members about analysis of scenarios under which carbon markets could go bust. For example, how would green swan events affect the capacity of central banks to rescue market participants with large carbon offset positions in their investment portfolios?9 Because VCM market failure and further delay of direct financing of climate action will have severe consequences for our planet and its people, IOSCO members should not refrain from critical analysis of VCMs. 

The preface to the VCM Report asks, “whether it would be appropriate for IOSCO to work more closely with private initiatives such as ICVCM [Integrity Council for the Voluntary Carbon Market] and VCMI [Voluntary Carbon Market Initiative], and if so, what type of collaboration this could entail.” (pp. 5-6) Because IOSCO develops principles or precepts for rules and as an intergovernmental organization can only make non-binding recommendations, IATP expects that the ICVCM and VCMI would welcome collaboration with IOSCO on their own terms because of the legitimacy that association with IOSCO would confer. The need for legitimacy is urgent because a very large portion of the underlying assets of the offset derivatives and cash contracts that the CME Group and other trading platforms hope to scale up are lacking in the integrity that most investors require.10 The ICVCM initiative to create a Core Carbon Principle (CCP), by which all offset certification protocols would abide to have their Voluntary Carbon Credits (VCCs) be CCP labeled “high quality” for trade, faces numerous challenges. We outline a few of those challenges here and ask IOSCO members to consider whether collaboration with ICVCM would help overcome those challenges.   

Public reporting on nature-based emissions offset credits continues to highlight the low and even worthless integrity of many of the offset projects’ credits that are certified for VCM trading.11 Verra, the certifier of about two-thirds of all VCM offset credits, has rebuffed the proposed ICVCM review of Verra credits and the certification process to determine whether they comply with the CCP and ICVCM Assessment Framework (AF) criteria.12 Verra-certified offset credits form a large part of the proprietary price index that underlies the CME Nature Based Global Emissions Offset Futures contract (N-GEO).13 Financial engineering can redistribute among different registry credits some of the price level and price volatility risk of offsets in the cash market. However, when most of the offset credits are or are perceived to be of low to no integrity, only the most risk seeking arbitrager will make trading such low integrity credits part of a climate transition risk management strategy.  

Such controversy over the integrity of land-based offset projects and credits can hardly be reassuring to market participants. They may be at risk of litigation for making claims to their investors, insurers or bankers about how they are managing climate change transition risks, at least in part, through buying and selling offset credits and offset futures. According to a TSVCM survey in 2020 of buyers and prospective buyers of carbon offset and removal credits, 45% of those surveyed were concerned about “a lack of environmental and social integrity of certain [offset] projects.”14 (“Social integrity” in offset contracts assures buyers that neither human nor land rights were violated in developing and maintaining offset projects in the jurisdictions where the offset projects are located. In the ICVCM nomenclature, social integrity is an optional “attribute” that certification protocols may add to the environmental integrity of a CCP labeled credit.) 

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1. IATP is a U.S. nonprofit, 501(c)(3) nongovernmental organization, headquartered in Minneapolis, Minnesota (U.S.A.), with offices in Washington, D.C. and Berlin, Germany. IATP has participated in the nearly weekly meetings of the Derivatives Task Force of Americans for Financial Reform since 2010. IATP has submitted more than 20 comments on U.S. Commodity Futures Trading Commission rulemaking, and on consultation papers of the Task Force for Scaling Voluntary Carbon Markets, International Organization of Securities Commissions, Financial Stability Board, the European Securities and Markets Authority, and the European Commission’s Directorate General for Internal Markets. We have participated in UN Framework Convention on Climate Change meetings since 2008 and filed submissions in response to UNFCCC Secretariat decision making documents. The UNFCCC part of our climate change work is represented at


3. “Voluntary Carbon Markets Discussion Paper,” International Organization of Securities Commissions, November 2022, p. 3.

4. E.g., Cheyenne Ligon, “Bitcoin Could Double in Price Under CFTC Regulation, Chairman Behnam Says,” Coin Desk, September 29, 2022.

5., p. 2.

6. Ibid., p. 3

7. Eli-Mitchell Larson as cited in Jeff Shankleman and Akshat Rathi, “Wall Street’s Favorite Climate Solution Mired in Disagreements,” Bloomberg Green, June 2, 2021.

8. Camilla Cavendish, “Carbon offset gold rush is distracting us from climate change, Financial Times, November 22, 2019 and Russell Blinch for CME Group, “Carbon Markets Driving Price Discovery,” Institutional Investor, October 17, 2022.

9. Patrick Bolton et al, “The Green Swan: Central banking and financial stability in the age of climate change,” Bank for International Settlements and Banque de France, January 2020.

10. Indeed, at least one investment group, managing $11 trillion assets, bans companies it invests in or would invest in from using emissions offset projects to claim to reduce climate related risks, at least until 2030. “Investor group bans carbon removal from CO2 reduction plans,” Reuters, January 31, 2023.

11. E.g., Tin Fischer and Hannah Knuth, “Phantom Offsets and Carbon Deceit,” Zeit Online, January 19, 2023, and Fiona Harvey, “Greenwashing or a net-zero necessity?” The Guardian, January 18, 2023, and “The Carbon Con,” Source Material, January 18, 2023.

12. Danny Cullenward et al, “Verra’s broadside against the Integrity Council props up the status quo,” CarbonPlan, September 29, 2002.

13. Steve Suppan, “What underlies the underlying (asset )of CO2 emissions offset futures contracts?” Institute for Agriculture and Trade Policy, March 31, 2021.

14. “Public Consultation Report,” Task Force on Scaling Voluntary Carbon Markets, May 20, 2021, (Slide 50).