In June of this year, the CFTC announced a new Environmental Fraud Task Force in its Division of Enforcement, and also requested whistleblower tips related to fraud or manipulation in the carbon markets. The Task Force will focus on addressing fraud related to purported environmental benefits of carbon credits and material misrepresentations regarding ESG products or strategies. Importantly, the CFTC noted that the Task Force will examine conduct in the spot and derivatives markets.

The whistleblower publication gave additional indication as to the Enforcement Division’s focus. Specifically, the alert requested tips related to manipulative and wash trading in carbon futures contracts; ghost or illusory credits in the spot markets; double counting carbon credits; manipulation of tokenized carbon credits; and fraudulent statements relating to quality, quantity, additionality, project type, methodology, environmental benefits, duration, and the buffer pool.

Why is the CFTC focused on carbon markets?

CFTC Commissioner Christy Goldsmith-Romero recently spoke at length about the importance of voluntary carbon markets and the need to manage climate and carbon-related risks through derivatives markets. Despite the importance of these markets, though, Romero also noted that the growth of voluntary carbon markets has stalled recently, perhaps due to concerns over a lack of transparency and trust.

The CFTC is responsible for ensuring the integrity and resilience of derivatives markets, and it can only do so for carbon market derivatives if there is faith in the deliverable products and underlying markets. Therefore, fostering trust and transparency in the underlying markets may lead to increased liquidity and resiliency in the derivatives markets.

Why is the CFTC approaching this through enforcement?

The CFTC can issue regulations governing derivatives products, but only has anti-fraud and anti-manipulation authority over the physical markets. As a result, the Commission cannot promulgate regulations related to spot or physical transactions involving carbon credits, but it can “regulate these markets by enforcement” as a means of ensuring the reliability and integrity of the products underlying derivatives contracts.


The CFTC is clearly focused on this area and will likely begin bringing enforcement actions against wrongdoing in physical and financial transactions. It is therefore imperative that market participants create compliance programs designed specifically for their activities related to voluntary carbon trading, and conduct due diligence on all carbon-related transactions.

A lack of transparency through consistent, comparable data with an agreed-upon taxonomy can present challenges to proper functioning of markets, including price discovery.