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Regulatory: IOSCO launches consultation on carbon market – commodities/derivatives/exchanges

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November 25, 2022

Cadwaladr, Wickersham & Taft LLP

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The International Organization of Securities Commissions (“IOSCO”), an international policy forum for securities regulators, has announced the publication of a consultation report and discussion paper. The 90-day public consultation includes “recommendations for building robust compliance carbon markets” and “key ideas for improving the resilience and integrity of voluntary carbon markets…”. The Compliance Carbon Market (“CCM”) Consultation Report and Voluntary Carbon Market (“VCM”) Discussion Document are open for public comment until February 10, 2023. IOSCO is seeking feedback from market participants on “How to Promote.” Fair and functional markets and strengthening of structural resilience to ensure that these markets achieve their stated goals, meaning, environmental goals on which their existence is based.” The report on CCMs (those created and regulated by mandatory government carbon reduction regimes) contains several recommendations for jurisdictions on how to meet their obligations. strive for carbon market compliance. Article 6 of the Paris Agreement. The report on VCMs (operating outside of compliance markets) describes details that “could promote robust carbon credit markets”, along with the weaknesses currently limiting the development of carbon credit markets, the report asks respondents to consider the role that financial regulators should play their part in overseeing these markets.

Announcing the publication of the report at COP27, Jean-Paul Servais, President of IOSCO, President of the IFRS Foundation Monitoring Board and President of the Belgian Financial Services and Markets Authority, said: “In recent years, carbon markets have provided companies with a mechanism commanded to have gained significant importance as economies of scale, and society at large, to ease their transition to net zero However, so far they have failed to meet their targets Any market with integrity, transparency and liquidity IOSCO today expects its international lending will continue solid and well-functioning operations, with a focus on promoting integrity and liquidity and increasing transparency to facilitate price discovery market expertise to help develop the appropriate framework for carbon markets

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Braving the Temperature: IOSCO is a major force in the regulatory landscape, with its members regulating more than 95% of the world’s securities markets in 130 jurisdictions. Its proposals will carry a lot of weight with their affiliated regulators. The carbon offsetting market has come under heavy scrutiny recently due to product inconsistencies and lack of control that can lead to greenwashing. There is also concern that carbon offsetting markets may discourage or divert corporate actors from the primary goal of reducing emissions. The IOSCO consultation came about largely in response to these concerns. It remains to be seen, of course, to what extent regulatory activities are effective in promoting well-functioning and large-scale carbon markets, and future decisions on that issue will have to await further development of such regulations.

In particular, Rostin Behnum, the chairman of the US Commodity Futures Trade Commission (“CFTC”), was recently appointed vice chairman of IOSCO. Behnam is a strong supporter of developing carbon markets in the US, and the CFTC has been active in seeking market solutions to climate change. The CFTC has also published several reports on VCM and is hosting a VCM event in June 2022. The CFTC is currently preparing a report on the impact of climate change on US financial markets.

(This article originally appeared in “Cadwalder Climate,” the biweekly ESG markets newsletter.)

The content of this article is intended as a general guide to the topic. Specialist advice should be sought regarding your specific circumstances.

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