The U.S. Commodity Futures Trading Commission’s (CFTC) Whistleblower Office took the unusual step of inviting market participants to look for and submit tips related to fraud, manipulation, and other forms of misconduct in the carbon markets. In doing so, the CFTC accomplished two separate, but related goals: first, to remind participants that the Enforcement Division is focused on environmental markets and has a powerful mechanism to entice insiders to disclose potential misconduct; and second, to lay down an updated marker that the CFTC has jurisdiction over trading in environmental commodities and intends to investigate conduct in that space.
Carbon credits and offsets are “commodities” under section 1a(9) of the Commodity Exchange Act (CEA). Although the CFTC is primarily responsible for regulating commodity derivatives, it has broad enforcement authority over the physical commodity markets. This includes trading in all forms of carbon credits, offsets, and other environmental commodities, such as renewable energy certificates. Accordingly, the CFTC can bring an enforcement action under the CEA’s provisions prohibiting fraud, manipulation, and other forms of market abuse for activity involving carbon products, even if that activity does not involve derivatives. Moreover, like most US regulators, the CFTC frequently investigates activity that occurs outside the U.S. if there is the possibility that the activity has a...
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