US CFTC Issues First Guidelines for Carbon Credit Markets

The U.S. Commodity Futures Trading Commission (CFTC) approved on Friday the first guidelines for trading voluntary carbon credit derivative contracts in the country, a move expected to help bolster the nascent market. Carbon credit derivative contracts are financial instruments that derive their value from carbon credits, which represent the right to emit one metric ton of carbon dioxide or an equivalent amount of greenhouse gases. The contracts allow traders and market participants to hedge against or speculate on the future price of carbon credits, similar to how traditional derivative contracts function in commodities or financial markets.
Regulators have pushed for heightened scrutiny of voluntary carbon markets, which have developed outside government oversight, due to concerns over quality and double counting. The U.S. derivatives watchdog has outlined guidance for derivatives exchanges to crack down on price manipulation.

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