In response to the increased global use of voluntary carbon credits by companies to offset their greenhouse gas (GHG) emissions, policymakers and market participants have expressed concerns that voluntary carbon markets are not transparent and standardized, making it difficult to distinguish high-quality credits from low-quality ones. Recent efforts to regulate voluntary carbon credit markets include:

• A public consultation announced at COP28 by the Council of the International Organization of Securities Commissions (IOSCO) on a proposed set of “best practices” for voluntary carbon markets, intended for consideration by regulators and other authorities or market participants, aims to address the weaknesses identified by IOSCO.
• Proposed guidance from the U.S. Commodity Futures Trading Commission (CFTC) regarding the listing of voluntary carbon credit derivative contracts for trading on CFTC-regulated derivatives exchanges.
• California’s recently passed Voluntary Carbon Markets Disclosure Act (AB 1305), which requires detailed disclosure from (1) commercial entities that trade or sell voluntary carbon offsets in California, and (2) entities operating in California that, among other claims, claim to achieve net zero emissions or “carbon neutrality,” including entities that purchase or use voluntary carbon offsets.

(Sullivan & Cromwell LLP)