(Bloomberg) -- The US Commodity Futures Trading Commission expects to finalize its guidance for carbon credits within the next six months, as it pursues a broader crackdown of fraud and manipulation in the embattled market.

CFTC Commissioner Christy Goldsmith Romero said she anticipates the final rulebook will be issued by the end of the year and maybe as soon as September.

For carbon credits to trade “on our markets, we have to ensure there’s integrity,” Romero said in an interview on the sidelines of City Week 2024 in London. “We have to make sure we have something trading that people can rely on to be what it is, to be what it says it does.”

The CFTC review follows a confusing period for buyers, sellers and traders of such credits, which are used by companies to offset their reported carbon emissions. Currently, most carbon credits are sold over the counter rather than through an exchange and the market has been the focus of intense scrutiny for overblown green claims. Companies are now desperate for signs of a minimum bar they need to meet in their offset procurement to avoid greenwashing allegations. 

The guidance from the CFTC would flesh out a baseline standard that commodity exchanges would have to comply with to list futures and other derivative products based on carbon credits. The CFTC released draft guidance in December, and it’s now in the process of reviewing comments that it received.

While it’s unusual for an industry to seek more regulation, it’s also clear that market participants want to avoid getting into “trouble with their investors or their regulators, so they’re looking for standards,” Romero said.

Kyle Harrison, head of sustainability research at BloombergNEF, described the initial draft guidance from the CFTC as a potential “major integrity boost” that should “inject confidence” into the roughly $2 billion market for carbon offsets.

Since January 2022, prices have plummeted. One of the most popular futures contracts for voluntary carbon offsets, the CBL Global Emissions Offset, has dropped over 90% to 50 cents per ton, down from roughly $8 per ton.

Romero said the CFTC’s final guidance is expected to adapt the concepts and standards issued by the Integrity Council for the Voluntary Carbon Market, a governance body chaired by former SEC Commissioner Annette Nazareth.

Nazareth said on Monday that the market is at an “inflection point.” Observers and market participants need “to stop looking in the rear-view mirror, but look forward to the seriously positive opportunities that the voluntary market can capitalize on,” she said.

The International Organization of Securities Commissions, the global standard setter for securities regulators, also has a carbon markets consultation underway, which is being co-chaired by CFTC Chairman, Rostin Behnam and Verena Ross, head of the European Securities and Markets Authority. Meanwhile, John Podesta, President Joe Biden’s senior adviser on international climate policy, has indicated that the US government will soon unveil its own set of quality standards for carbon credits. 

“You’re seeing a lot of dovetailing” of standards, Romero said. “Uncertainty has been a headwind, so the idea is to bring more certainty and also transparency in pricing.”

The CFTC also has simultaneously set up an environmental fraud taskforce and is running a program that rewards whistleblowers for reporting potential wrongdoing in the carbon market. Romero said no case has yet been brought, but the CFTC has “a number of active investigations” underway.

“Voluntary carbon credits are something we’re looking at,” Romero said. “We’re not trying to paint an entire industry or market as fraudulent, but the whole idea is to the extent you can weed out bad actors, you can increase confidence and trust in the market, which is really necessary.”

CFTC whistleblowers are entitled to receive up to 30% of any monetary sanctions collected. Since 2014, the commission has applied monetary sanctions of more than $3 billion and granted $330 million in whistleblower awards.  

(Updates with Nazareth comment in paragraph 10.)

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