Comment Text:
The Integrity Council for the Voluntary Carbon Market (Integrity Council or ICVCM) appreciates the opportunity to submit its comments regarding the Commodity Futures Trading Commission’s (CFTC or Commission) proposed guidance (Proposed Guidance) for the listing of voluntary carbon credit derivative contracts published in the Federal Register on December 27, 2023.
The Integrity Council supports the Commission’s efforts to enhance the quality of voluntary carbon credits (VCCs) and bring integrity to voluntary carbon markets (VCMs). Integrity is the North Star of the Integrity Council. It is essential not only to ensure that VCCs genuinely reduce or remove greenhouse gas emissions, but also to provide a firm foundation for a more robust, liquid and transparent VCM that can meaningfully accelerate the transition to net zero. As described in greater detail below, the Integrity Council’s program to address the urgent need to bring integrity to the VCM is well underway. Accordingly, we believe that the Commission should recognize and rely upon the ICVCM framework as a key component of its regulatory oversight role.
I. The Integrity Council’s Standard-Setting for VCCs and the VCM
The Integrity Council is an independent governance body for the VCM established in 2021. The mission of the Integrity Council is to ensure that carbon credits are of consistently high integrity to enable the voluntary carbon market to meet its full potential as a key complementary tool to reduce and remove greenhouse gas emissions. The Integrity Council is an outgrowth, and follows on the work of, its predecessor entity, The Task Force on Scaling Voluntary Carbon Markets (TSVCM). The TSVCM was a year long international effort that brought together over 450 individuals and 250 organizations from across the ecosystem to create a blueprint to build a high integrity carbon market that could meaningfully scale to meet urgent net zero goals.
Following on the TSVCM’s blueprint work, the Integrity Council was formed with a governing board of 24 members. Eighteen governing board members are independent, three are members of Indigenous Peoples and Local Communities. The remaining three board members are market representatives, who bring their expertise to the Integrity Council’s work but who do not have a vote on standard setting issues. The work of the Integrity Council is greatly enhanced and informed by an Expert Panel, consisting of twelve individuals renowned for their climate expertise, as well as 11 subject matter experts. Several of our governing board members who have deep knowledge of and experience in carbon markets serve on a committee of the board, known as the Standards Oversight Committee (SOC).
Based on inputs from our Expert Panel and SOC, as well as comments received through a public consultation process, the Integrity Council established its Core Carbon Principles (CCPs) in March 2023, which set a global benchmark for high integrity and published its full Assessment Framework in July 2023. The CCPs are ten fundamental principles for high-quality carbon credits that create real, verifiable climate impact, based on the latest science and best practice. The CCP label is designed to build trust and unlock investment by making it easy for buyers to identify a high-integrity credit no matter which carbon-crediting program issued it, what kind of credit it is, or where it is generated. The CCPs apply to both products—i.e., VCCs—as well as the carbon crediting programs that issue them.
Equally important, the Integrity Council issued an Assessment Framework to accompany the CCPs. The Assessment Framework provides detailed criteria that will be applied to determine whether the CCPs are being met. The Integrity Council also issued an Assessment Procedure to provide guidance on how it will undertake its work.
In a broad sense the CCPs are akin to both intermediary regulation and listing standards. As intermediary regulation, they provide detailed governance rules that carbon crediting programs must meet to ensure that the credits they issue satisfy key integrity requirements. These governance rules that apply to carbon crediting programs contain detailed requirements not only relating to internal governance of the programs, but also integrity and transparency requirements relating to the developers of the projects that underly the VCC. As listing standards, the CCPs define which categories of carbon credits deliver genuine climate impact and thus qualify for the CCP label. In order for a carbon credit to trade with the CCP label, it must be both issued by a carbon crediting program that has been granted the CCP label, and must be a VCC from a CCP-approved carbon category.
In all of its work the Integrity Council has sought to operate as if it were a fully recognized and regulated self-regulatory organization. The Integrity Council has embraced regulatory practices, including adopting a full notice and comment process for our CCPs, Assessment Framework and Assessment Procedure. We have also been fully transparent concerning the entities that have applied for the CCP label and the processes we are undertaking to grant the CCP label to particular carbon categories. It is particularly noteworthy that carbon crediting programs representing over 98 percent of the current market (based on retirements in 2023) have applied for the CCP label, evidencing the tremendous buy-in and support that the Integrity Council work has generated. The Integrity Council is currently assessing the carbon crediting programs as well as over 100 methodologies, sorted into categories, to determine compliance with the CCP requirements. We are conducting our assessments methodically, both employing Integrity Council independent experts and staff as well as Multi-Stakeholder Working Groups (MSWGs) in the case of categories of credits that could benefit from broader expertise and perspectives. The recommendations of the independent experts, Integrity Council staff and the MSWGs will be considered by the SOC and ultimately determined by the Governing Board of the Integrity Council.
Further, in line with traditional self-regulatory organizations, the Integrity Council will periodically examine the carbon crediting programs for adherence to the CCPs and will take action in the event of non compliance. The Integrity Council will also take stock of any information brought to its attention concerning adherence to the CCPs as they relate to carbon crediting programs or carbon categories. Finally, the Integrity Council will continuously curate and update the CCPs and Assessment Framework based on best practices and best science. We anticipate this updating process will occur every two to three years. The process of improving the framework is already underway, with Continuous Improvement Work Programs (CIWPs) having been formed to consider such matters as Paris Alignment; Sustainable Development Benefits and Social Safeguards; Permanence; Digital Measurement, Reporting and Validation; and Market Transparency, Standardization and Scalability. Other CIWPs will be formed over time.
2. Recognition of the Integrity Council’s CCPs
Governments establishing VCMs have been looking to the CCPs as an international standard that can be incorporated into their frameworks. The U.K. government has announced that it intends to consult on endorsement of the CCPs and consider how to reflect them in policy, regulation, and guidance. The African Carbon Markets Initiative has said it requires project developers to adhere to the CCPs and the Monetary Authority of Singapore is exploring how to align its transition credits with the CCPs.
We believe this reliance on the Integrity Council’s work is well placed. It is a recognition of the robust, transparent, and regulated-like process we have undertaken. It is also a recognition of the palpable benefits of employing a public-private partnership to address one of the most existential challenges of our time: climate change. The private sector has devoted considerable resources and expertise that is not available in the public sector - at least not in the timeframe required - to establish international standards for VCCs and the VCM. But working alongside and in cooperation with governments, we believe the Integrity Council makes urgently needed progress.
After a careful review of the criteria specified in the Proposed Guidance that designate contract markets (DCMs) would be required to address when evaluating VCCs and carbon crediting programs, we are confident that the Commission’s criteria are fully satisfied by the CCPs. That said, the CCPs and the Assessment Framework together with the expertise that is being brought to bear to implement the framework, provide a much deeper analysis of the criteria, and do so in a manner that would not overly burden DCMs. We believe the Integrity Council’s assessment process would be superior to that conducted by the DCMs and understandably so, since DCMs cannot be expected to bring a level of expertise comparable to that of the Integrity Council. Thus we believe that in cases where a derivative is offered on a DCM in which the underlying VCC has the CCP label, the Commission’s final Guidance should provide that DCMs will be deemed to have satisfied the Commission’s integrity requirements.
3. Further Comments.
We have provided more detailed comments in response to the Commission’s questions in the attached Table 1. Further, we note specifically that the Integrity Council believes that there are strong arguments linked to price formation and alignment with international climate policy that would argue in favor of including sustainability impacts and safeguards, as well as contribution toward net zero emissions by mid-century, to the list of Core Principle compliance considerations in the final Guidance. These criteria received wide recognition and endorsement at COP28 and thus are being recognized as international standards. The Integrity Council’s CCPs include these VCC criteria in addition to the eight Core Principles identified in the Proposed Guidance. Please refer to questions 1, 16 and 17 in Table 1 of the attached document for a more detailed discussion of these requirements.
