Bringing Markets Together

By: Jim Kharouf, Communications Director, IncubEx

This was a remarkable week for the voluntary carbon markets as dozens of professionals from market participants, exchanges, brokers, traders, associations, rating agencies, consultants, standards organizations and others met with the Commodity Futures Trading Commission (CFTC) for the second voluntary carbon markets convening.

This convening, initiated by CFTC Chairman Rostin Benham, collectively showed how the voluntary carbon market has evolved, how it is maturing, and the plethora of ideas about how it can scale globally into a major spot and derivatives market.

Many of the issues and challenges that surround today’s market are nothing new actually. Some echo the hurdles that the Chicago Climate Exchange took on back in 2003 as the first voluntary carbon exchange. But what is clear today is that the combined efforts to standardize, verify, improve efficiencies and integrity of the market are indicative of just how far this market has come since those days.

CCX, for its part, attracted nearly 500 participants to a completely new voluntary market and included many of the utilities, major corporations, agricultural groups and others that are still active in the VCM today. Demand from corporates has only deepened since then, with more than 8,300 companies joining the UN’s Race To Zero.

The CFTC meeting included 30-plus government and market-participant speakers, each with a different viewpoint on how the VCM can be improved. Among several takeaways were the following:

1. Markets are getting better and more efficient – Futures exchanges and spot markets around the world are attracting customers and drawing volume
2. Standards for carbon projects by organizations such as the Integrity Council for Voluntary Carbon Markets and Voluntary Carbon Markets Integrity Initiative, are adding more structure, not to mention the International Organization of Securities Commissions (IOSCO), which published its Compliance Carbon Markets report this week.
3. Public initiatives such as compliance markets and efforts such as the USDA’s climate smart program provide useful reference points and supporting infrastructure for voluntary markets.
4. Rating agencies are applying third-party assessments on projects, which will offer sellers and buyers another data point on the quality of offsets
5. And CFTC’s ongoing leadership as commodities regulator in the US, is aiming to provide more certainty and integrity in these markets – especially addressing cases of fraud or manipulation of the OTC market, with further oversight still to be determined.

Market growth is never about just one thing. Many drivers across all stakeholders and infrastructure providers propel products and markets. IncubEx and our partners at Trayport, launched The Voluntary Climate Marketplace in 2022 as a neutral, open access, transparent spot market for carbon credits on proven technology platform with efficient settlement. We believe this is the foundation for a successful market. Offering customers access to transparent pricing, enfranchising brokers to utilize the platform to promote liquidity, attracting corporate buyers and project developers and improving the market based on customer feedback is central to that mission.

The need for carbon offsets is a critical component to the real-world goal of reducing our carbon emissions for future generations.

Can voluntary markets meet these requirements? Of course, they can. The decades of experience is there with ever-increasing focus by the public and private sectors. Current efforts to improve and scale the market is unprecedented and regulators, such as the CFTC, will play a key role.