IOSCO launches consultation on carbon markets  

Markets so far 'fallen short of objectives'

The International Organization of Securities Commissions (IOSCO) has launched a consultation on compliance carbon markets (CCMs) and for enhancing the resilience and integrity of voluntary carbon markets (VCMs).

Voluntary carbon markets

IOSCO, the international policy forum for securities regulators, has published a discussion paper intended to advance the conversation about “what sound and efficient VCMs should look like and what role financial regulators may play in promoting integrity in those markets”.

The paper also explores vulnerabilities that can prevent carbon credit markets from upscaling such as a lack of legal clarity or standardisation.

IOSCO stated it is offering discussion points around what makes for resilient carbon credit markets, while conscious of the fact the framework associated with Article 6.4 of the Paris Agreement is “evolving”.

States signed up to the Paris Agreement have the option, under Article 6, to establish voluntary cooperation with each to reach their emissions reduction targets. Article 6.4 establishes a mechanism for trading greenhouse gas emission reductions between countries.

Compliance carbon markets

Alongside the VCM discussion paper, the board of IOSCO has published a consultation report that outlines recommendations for jurisdictions looking to establish CCMs as a way to meet their obligations under Article 6. It builds on lessons from existing markets and looks at what makes for appropriate regulatory and oversight frameworks.

See also: – All ESG Clarity’s COP27 coverage

IOSCO has made 12 recommendations for jurisdictions on this path, including:

  • Relevant authorities should increase predictability and transparency in primary market decisions.
  • To foster fair, stable and competitive markets, relevant authorities in charge of primary market issuance should place greater reliance on auctions over free allocation.
  • Relevant authorities should consider setting frequent auctions.
  • When relevant authorities establish market stability mechanisms, any market intervention should be rule-based to allow for better predictability.

Announcing the publication of the reports at COP27, Jean Paul Servais, IOSCO chairman, IFRS Foundation Monitoring Board chair and chairman of the Belgium Financial Services and Markets Authority, said: “In recent years, carbon markets have gained significant importance as a mechanism for corporates, and society in general, to facilitate their transition towards net zero.

“However, they have so far fallen short of their objectives. No market can function without appropriate levels of integrity and, transparency, and liquidity so IOSCO today hopes to lend its international, market expertise to help develop appropriate frameworks for sound and well-functioning carbon markets, focusing on promoting integrity and liquidity and increasing transparency to facilitate price discovery.”

Rodrigo Buenaventura, chairman of the Spain National Securities Market Commission and vice chair of the IOSCO Sustainability Taskforce, said: “Financial market regulators and the IOSCO are eager to see well-functioning carbon markets, which means liquid markets that investors can trust and where there are strong disclosure practices.

“That has not yet been consistently achieved. There are good practices we have now set out which will make that achievable.”

Responses to discussion questions in both reports can be sent to before 10 February 2023.