LawFlash

GAO Identifies Federal Government Actions to Promote Voluntary Carbon Market Integrity and Transparency

October 01, 2025

A report by the US Government Accountability Office examining the state of voluntary carbon markets and efforts of federal agencies regarding these markets found the federal government has had a limited role, with various agencies providing some oversight and guidance. While certain federal entities have supported the production of carbon credits and served as potential purchasers, those efforts have not regulated carbon credit projects or carbon credit use. The report lists key challenges to ensuring the credibility of carbon credits and steps the government can take to promote market integrity and transparency.

ADDITIONALITY AND OVER-CREDITING

One of the key elements of a credible carbon credit is additionality. As set forth in the report, to meet the additionality prong, the carbon credit from a project must not have occurred in the absence of the incentive created by the carbon credit revenues. However, because it can be difficult to determine whether a carbon project results in emissions reduction that would not have otherwise occurred, there are concerns that carbon credits that are generated and issued do not represent actual net emissions reductions (i.e., over-crediting concerns).

Such concerns arise from factors including availability of information to assess the additionality of a carbon credit and challenges with setting a baseline for what emissions would have been without a carbon project.

PERMANENCE AND REVERSAL RISK

Another key element of a credit carbon credit is permanence, which requires that the carbon that was removed or sequestered not be subsequently released into the atmosphere after the carbon credit is generated and issued. Ensuring permanence can be challenging due to the risk that carbon that was removed or sequestered is rereleased into the atmosphere (i.e., a reversal). Reversal risk can result from various factors including unforeseen events, leakage from a storage site, and natural events (e.g., fires, storms, insect infestations).

STANDARDIZATION AND TRANSPARENCY

The need for standardization was also identified as a significant barrier to transparency in the voluntary carbon markets. Because carbon credits can be generated from a wide variety of project types using different protocols, it can be difficult to assess the quality of carbon credits. The manner in which carbon credits are quantified and verified also may vary, which can present challenges to market participants.

FEDERAL ROLE IN VOLUNTARY CARBON MARKETS AND POTENTIAL ACTIONS

Various federal agency efforts have been undertaken to improve the integrity and transparency in the voluntary carbon markets. For example, the report notes that the US Department of Agriculture’s Greenhouse Gas Technical Assistance and Third-Party Verifier program plans to provide a list of qualified technical assistance providers and third-party verifiers who work with producers to generate carbon credits as well as a list of widely accepted voluntary carbon credit protocols that are designed to ensure consistency, reliability, effectiveness, efficiency, and transparency.

As another example, the Commodity Futures Trading Commission (CFTC) issued guidance last September to promote accurate pricing, reduce susceptibility to manipulation of voluntary carbon credit derivative contracts, and promote confidence in those contracts by providing characteristics for consideration in connection with contract design and listing. The CFTC withdrew this guidance on September 10, 2025, stating that the guidance provided “limited value” and “placed a disproportionate focus on a particular class of derivative contracts.”

The notice of withdrawal did not substantively discuss the guidance or undermine any of the principles addressed in the guidance, many of which align with the principles that market participants in the voluntary carbon markets adhere to when transacting carbon credits. Those characteristics included (1) transparency, additionality, permanence, and accounting for the risk of reversal and robust quantification of emissions reductions or removals for consideration when addressing quality standards; (2) governance, tracking mechanisms, and measures to prevent double counting for consideration when addressing delivery procedures; and (3) third-party validation and verification for consideration when addressing inspection or certification procedures.

REPORT RECOMMENDATIONS

The report identified several steps that the federal government could take to promote market integrity and transparency if it chooses to do so. While the report noted that there was no consensus on specific steps to be taken, examples of these steps include ensuring market participants have access to sufficient data, maintaining a registry to track carbon credits, regulating and certifying the quality of carbon credits, and taking enforcement actions against fraud and false or misleading claims.

The CFTC took its first enforcement action involving fraud in the voluntary carbon markets in October 2024, and the withdrawal of its guidance should not be viewed as a retreat from its regulatory oversight over voluntary carbon credit derivative transactions or additional enforcement actions involving the voluntary carbon markets.

The report highlights the complexities and variability in the voluntary carbon markets that impact the transparency, credibility, and integrity of carbon credits that are generated, issued, and transacted. Despite the federal government’s role having been limited to date, the report flags potential actions that could enhance market integrity and transparency and may influence market practices and regulatory measures that could be implemented in the future to address the need for transparency and standardization to promote the credibility and growth of the voluntary carbon markets.

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Authors
Pamela T. Wu (Washington, DC)
Levi McAllister (Washington, DC)