COP27: Regulators plan closer scrutiny of carbon markets

LONDON, Nov 9 (Reuters) – Global securities regulators on Wednesday proposed closer scrutiny of carbon trading to deepen liquidity and prevent greenwashing in markets used by companies to offset their emissions. to make the transition to a net-zero economy.

The International Organization of Securities Commissions (IOSCO), which brings together securities regulators from around the world, has proposed improvements to ‘compliant’ carbon markets, and asked whether regulators should be more involved in ‘voluntary’ carbon markets.

Compliance refers to regulated markets for trading permits on exchanges like ICE and EEX with the European Union’s emissions trading scheme (ETS). Permits for domestic firms are issued by governments to impose a maximum amount of carbon emissions they can emit.

The unregulated voluntary market refers to companies buying credits from emission reduction projects, such as renewable energy or planting trees to reduce their emissions.

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Both markets have fallen short of their targets, IOSCO President Jean-Paul Servais said in a statement to coincide with COP27, this year’s annual UN climate change summit of world leaders being held in Egypt.

“No market can function without appropriate levels of integrity, transparency, and liquidity, so IOSCO today hopes to lend its international market expertise to develop appropriate frameworks for sound and efficient carbon markets.” helpful,” Servais said.

A report from the Global Financial Markets Association and the Boston Consulting Group last year found that about 80% of emissions are not covered by compliance markets, limiting their effectiveness in reducing emissions to zero.

IOSCO chart on carbon markets

IOSCO recommends that the authorities should increase transparency in the settlement markets on the number of permits that will be issued for free and for auction, with the latter depending on the fact that it generates liquidity and income.

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“Frequent auctions help provide more transparency to the market and can help reduce price volatility,” IOSCO said, adding that regional regulators should provide “clear and robust” frameworks for monitoring separate and efficient carbon markets. specify those supported by the application.

The exchange can also publish cumulative positions held by various market participants, it added.

IOSCO said it had also identified potential weaknesses in voluntary carbon markets, such as a lack of standardization of measurement, and concerns over the quality and double-counting of carbon credits, all of which could leave the sector open to fraud and manipulation. .

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Regulators may need to work closely with the market, which was worth $1 billion in 2021, IOSCO said.

“Some weaknesses in voluntary carbon markets have so far prevented these markets from growing to their full potential, while others may be worrying for regulators in their efforts to counter the risk of greenwashing,” IOSCO said.

IOSCO, whose recommendations are out for public consultation for 90 days, has no power to impose changes but its member states, which regulate 95% of the world’s securities markets, have pledged to implement the final recommendations.

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Reporting by Huw Jones; Edited by Frank Jack Daniel

Our Standards: The Thomson Reuters Trust Principles.


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