IOSCO publishes a final report to help its members develop sound and well-functioning compliance carbon markets

IOSCO published a final report on CCMs to assist its members in developing effective carbon markets. CCMs fall into two categories: „cap-and-trade“ markets, where carbon emission allowances are issued by government organizations to limit CO2 emissions, and „baseline-and-credit“ markets, where emitters can earn allowances by reducing emissions beyond their obligations.
The report highlights the growing interest in CCMs worldwide, with 29 systems currently in force and 20 more under development or consideration, particularly in Latin America and the Asia-Pacific regions, and even steps taken towards emissions trading in Africa.
For CCMs to be effective, they must be underpinned by principles like orderly functioning, transparency, integrity, stability, and accountability, similar to regulated financial markets. IOSCO issued a Consultation Report in November 2022, which received 19 responses supporting its proposed recommendations.
The report consists of six chapters: Introduction, description of existing CCMs, overview of primary and secondary markets functioning, regulatory frameworks, recommendations for relevant authorities, and considerations for linking frameworks.
The report delves into primary and secondary markets considerations, including mechanisms to allocate allowances, market stability measures, and the importance of ETS registries to avoid double counting and enhance transparency.
The report suggests that oversight promoting transparency and integrity in commodities markets could be applicable to CCMs as well. It identifies recommendations for addressing issues related to integrity and orderly functioning in both spot and derivatives markets: twelve recommendations covering primary and secondary market functioning, focusing on transparency, predictability, market structures, integrity, and structure.
The report aims to make CCMs efficient and ensure their integrity, learning from the experience of other markets. Recommendations are directed to relevant authorities to accommodate their legal mandates when establishing CCMs in their jurisdictions.