02/21/2024
Last week, Duke Financial Economics Center (DFE) lecturing fellow, Lee Reiners, and his Research Assistant, Susan Lin, submitted a detailed comment letter to the Commodity Futures Trading Commission, regarding the Commission’s December 4, 2023, request for comment on proposed guidance for the listing of voluntary carbon credit (VCC) derivative contracts on designated contract markets (DCMs).
The letter acknowledges the CFTC’s historical focus on climate-related risks while noting that the proposed guidance falls short of what is needed to address serious problems in the VCC market, problems that implicate the Commission’s mission to promote market integrity, prevent price manipulation and other market disruptions, protect customer funds, and avoid systemic risk.
Reiners and Lin argue that for VCC derivatives markets to scale alongside growing public and private sector net-zero commitments in a way that facilitates price discovery and effective hedging, more must be done to ensure greater integrity in the underlying VCC market. To accomplish this, they recommend that all VCCs serving as the underling in a derivatives contract adhere to the Core Carbon Principles developed by the Integrity Council for the Voluntary Carbon Markets.
The full letter can be accessed here.
Note, the comment letter reflects the views of the authors and not The Climate Risk Disclosure Lab, the Duke Financial Economics Center, Duke University, or any other Duke-affiliated department or organization.
Economics Department