CFTC Commissioner Johnson Addresses Greenwashing in Carbon Markets
Commentary by Steven Lofchie
CFTC Commissioner Kristin N. Johnson addressed credibility concerns in the growing market for environmental derivatives and carbon offsets.
In remarks before Rice University's Baker Institute for Public Policy Annual Energy Summit, Ms. Johnson posited that although "in theory" carbon credits allow for carbon emitters to invest in a green initiative, the reality is that many of the carbon offset projects provide no environmental benefits at all. Ms. Johnson cited a recent study which found that 88 percent of carbon credits in the voluntary carbon markets do not result in any carbon emissions reductions. Ms. Johnson added that many investors have concluded that corporations have engaged in "greenclaiming by making difficult-to-verify corporate pledges to achieve 'net zero emissions.' "
To address these concerns, Ms. Johnson encouraged the independent auditing of carbon offsets and disclosure of green projects in order to reduce greenwashing and to verify the efficacy of carbon offsets - a recommendation made by IOSCO. In the absence of regulations regarding greenwashing, Ms. Johnson also advised the CFTC Environmental Fraud Task Force to "step up enforcement actions in the meantime."
Ms. Johnson also explained that the "carbon economy has spawned a mirror crypto-economy, in the form of carbonized tokens." She argued that "layering" the unregulated market of carbon offsets upon the unregulated market of cryptocurrency will "serve only to compound the risks and vulnerabilities inherent in both." Even with the "purported advantage" of all carbonized tokens transactions being publicly accessible via blockchain ledgers, "more needs to be done to verify whether particular offsets actually contribute to carbon neutrality," she said.
Commentary
Here is an excerpt from Commissioner Johnson's remarks:
- Greening claims made in connection with carbon offsets are, for now, unverifiable. Even putting aside cases where an offset might be an outright scam, it is incredibly difficult to know whether a given project actually results in reduced carbon emissions or promised carbon sequestration.
- Increasingly, investors and courts are concluding that corporations have also engaged in greenclaiming by making difficult-to-verify corporate pledges to achieve "net zero emissions."
Ms. Johnson argues (persuasively) that "infrastructure for the carbon credits markets creates conditions ripe for . . . malfeasance." If that is the case, perhaps the CFTC would do better to acknowledge the facts rather than continuing to play the role of aider and abettor of a contract that is either, to use her own words, "an outright scam" or one where "it is incredibly difficult to know" the actual value or results.