IOSCO Proposes Safety Measures for Voluntary Carbon Markets

Context: The International Organization of Securities Commissions (IOSCO) proposed 21 safety measures to enhance integrity, transparency, and enforcement in voluntary carbon markets (VCMs).

IOSCO Launches Public Consultation on Carbon Market 

• IOSCO, which groups market watchdogs from Asia, Europe, Latin America, and the United States, launched a 90-day public consultation on a set of good practices for national regulators to apply.
• The announcement was made at the COP28 climate summit in Dubai during a dedicated event.
• IOSCO’s Concerns and Focus: IOSCO expressed concerns about credit quality, double counting, and fraud in the carbon market, prompting the need for closer scrutiny.
• Regulatory Measures: IOSCO suggests regulatory measures such as requiring companies to disclose their use of carbon credits.
• Good Practices: IOSCO advocates good practices including comprehensive disclosures on project development, verification and auditing methodologies, and entities responsible for measurement, reporting, and verification.

What is IOSCO?

• The International Organization of Securities Commissions is the international body that brings together the world’s securities regulators. It is recognized as the global standard setter for the securities sector. 
• IOSCO develops, implements, and promotes adherence to internationally recognized standards for securities regulation. 
• It works intensively with the G20 and the Financial Stability Board (FSB) on the global regulatory reform agenda. 
• IOSCO was established in 1983. Its membership regulates more than 95% of the world’s securities markets.

What are the Voluntary Carbon Markets?

• Voluntary markets are those in which emitters— corporations, private individuals, and others— buy carbon credits to offset the emission of one tonne of CO2 or equivalent greenhouse gases.
• Such carbon credits are created by activities that reduce CO2 from the air, such as afforestation.
• Nature of VCMs: VCMs encompass projects like reforestation, renewable energy, biogas, and solar power, generating carbon credits for companies to offset emissions and achieve net-zero targets.

What is the Difference Between the Voluntary Carbon Market and the Compliance Market?

• Compliance Carbon Market:
  • Regulated by national, regional, or international carbon reduction regimes.
  • Operates under a cap-and-trade system with a limited supply of allowances.
  • Examples include the Kyoto Protocol and the European Union’s emissions trading system.
• Voluntary Carbon Market:
  • Operates independently from compliance markets; entirely voluntary participation.
  • Participants are not mandated to reduce emissions; engagement is driven by social responsibility, shareholder pressure, or PR considerations.

News Source: Business Standard