Federal agency under fire for reversing critical decision with 'short-sighted' consequences: 'Disappointing'

A United States federal agency intended to protect the public from manipulation related to commodities fraud is reducing its role in ensuring transparency and accountability for pollution, a global nonprofit says. 

The regulatory authority is taking a step back from listing carbon credits and improving air quality nationwide. 

What's happening?

According to the Clean Air Task Force, the Commodity Futures Trading Commission announced the withdrawal of its "Guidance Regarding the Listing of Voluntary Carbon Credit Derivative Contracts" in mid-September.

In a press release, the agency stated that this guidance "resulted in placing a disproportionate focus on [voluntary carbon credit] derivative contracts, which could lead to confusion and inconsistencies in implementing the CFTC's existing, well-established product listing regulatory framework."

However, the CATF, a global nonprofit, asserted that the agency's guidance was essential in assuring investors that carbon credits sold met quality standards.

"The short-sighted decision by the CFTC to withdraw its guidance on the listing of carbon credits is disappointing," the task force's Kathy Fallon said in a statement. 

Fallon also said, "Its withdrawal risks further eroding market integrity and undermining climate progress."

Why is carbon credit oversight critical?

Oversight of voluntary carbon markets enhances transparency for investors and establishes standards that deliver practical and positive climate benefits. 

Adequate oversight by a reputable agency enhances the effectiveness of reducing pollution and enables companies to fund clean energy and reforestation projects through carbon credits. Without this oversight, carbon offsets may not actually be beneficial in reducing harmful pollution. 

Proper oversight can also help prevent greenwashing, a practice in which companies may appear to be operating more sustainably than they actually are. Consumers and investors can make more informed financial decisions when accurate carbon credit oversight is available.

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What's being done?

The CATF said it had submitted comments to the CFTC in September 2024 asking that oversight of voluntary carbon markets be further strengthened, "including greater transparency into credit details, durability of carbon storage, and proper accounting for reversal risk." 

The CFTC's guidelines withdrawal seemingly flies in the face of that previous call.

On an individual level, residents can "submit their own comments" — in a manner of speaking, anyway — by reaching out to their elected officials to call for regulatory action that strengthens transparency and pollution reduction. Talking with state officials and community members about how carbon credits are supposed to function can also help.

Greater public awareness about carbon credits could inspire a stronger national push toward restoring confidence in carbon markets and the role they can play in addressing the overheating of our planet.

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