August 14, 2023

Double Jeopardy for Double Counting? CFTC and FTC Both Scrutinize Fraud in Carbon Markets

Holland & Knight Alert
Halley I. Townsend | Andy Kriha | Alexander S. Holtan


  • The Commodity Futures Trading Commission (CFTC) is exerting jurisdiction over fraud and manipulation in "physical" carbon markets and recently created an Environmental Fraud Task Force.
  • The Federal Trade Commission (FTC) has proposed updates to its Green Guides to address deceptive claims about the use of carbon offsets.
  • This alert by Holland & Knight's Greenwashing Mitigation Team examines the overlap between recent FTC and CFTC actions regarding carbon markets and explores the potential for both regulators to separately bring enforcement actions based on the same underlying conduct.

The Federal Trade Commission (FTC) and Commodity Futures Trading Commission (CFTC) have recently and aggressively signaled their intent to ramp up enforcement activity regarding the use of carbon offsets to make environmental claims. These moves should encourage market participants to understand and evaluate the impact of agency actions on any current and planned activities to make environmental marketing claims about use of offsets.


Carbon offsets represent carbon emission reductions or removal and are traded in either in the over‑the‑counter market or on exchanges. There are futures contracts on various types carbon offsets, many of which allow physical delivery of the offsets at settlement. The market is global and has grown to $2 billion as of 2022, with projections valuing the market at upwards of $10 billion by 2030.

Offsets are a popular tool that companies use to reduce their net greenhouse gas (GHG) emissions and live up to their environmental, social and governance (ESG) goals, as well as promises to consumers. By purchasing carbon offsets, businesses are typically financing renewable energy projects that remove GHG emissions from the atmosphere or avoid GHG emissions – such as commitments to preserve forests or the construction of facilities to capture carbon emissions – without being involved directly in these projects.

Double Regulation of Carbon Offset Markets and Related Environmental Claims

For the first time since 2012, the FTC is evaluating potential updates to its Guides for the Use of Environmental Marketing Claims (Green Guides or Guides) to provide clarity to marketers labeling products or making environmental claims, including stricter guidance for marketing claims made in connection with carbon offsets.1 The proposed update seeks to add more teeth to the guidance by addressing how companies link their use of offsets to claims that products or businesses are carbon-neutral, have net‑zero emissions, or are low‑carbon or carbon-negative.2 Because the Guides provide the definitive interpretation of how the FTC will exercise its broad statutory authority over unfair and deceptive practices with respect to environmental claims, failure to follow the Guides may result in an increased risk of enforcement by both the FTC and its counterpart state regulators.

The update to the Green Guides is happening at the same time as several actions by the Commodity Futures Trading Commission (CFTC) signifying its increased focus on environmental markets. Historically viewed as a futures and swaps regulator, the CFTC also has jurisdiction to bring enforcement actions for fraud and manipulation in physical commodity markets. The CFTC has turned that jurisdictional focus to environmental markets.

New Environmental Fraud Task Force: Watch for Increased Enforcement

The CFTC recently created an Environmental Fraud Task Force to scrutinize fraud and other misconduct in regulated and voluntary carbon markets. The task force will examine, among other things, fraud with respect to the purported environmental benefits of purchased carbon offsets, as well as registrants' material misrepresentations regarding ESG products or strategies.

The CFTC also issued a whistleblower alert seeking tips related to misconduct in carbon markets. The CFTC's whistleblower program offers a monetary reward, not only to the victim of the fraud, but also to company insiders and any other market participant who voluntarily provides information about violations of the Commodity Exchange Act (CEA) or CFTC regulations that lead to successful enforcement.

The Environmental Fraud Task Force will use the whistleblower alert as a tool to gather information to bring cases. In particular, the CFTC is interested in:

  • manipulative and wash trading or other violations of the CEA in carbon market futures contracts
  • fraud in the underlying spot markets related to ghost (illusory) carbon offsets listed on carbon market registries
  • double counting or other fraud related to carbon offsets
  • fraudulent statements relating to material terms of the carbon offset
  • manipulation of tokenized carbon markets

The CEA gives the CFTC the far‑reaching authority to pursue enforcement against "any manipulative or deceptive device or contrivance" in connection with "a contract of sale of any commodity in interstate commerce," regardless of a business' intent.3 And the characterizations of double counting and fraud in the whistleblower alert are incredibly broad. Under these descriptions, the CFTC could potentially bring enforcement actions outside of the trading context. For example, the CFTC could prosecute a project developer that uses deceptive claims in marketing offsets or a company that markets cargos of "carbon-neutral" crude oil. To avoid potential enforcement by both the CFTC and the FTC, businesses will need to be careful in structuring not only their trades in carbon offsets, but also in crafting their project documentation and in making marketing claims related to their use of carbon markets to offset their emissions.

Double Enforcement?

Could both the FTC and the CFTC bring separate enforcement actions against a company for the same underlying fact pattern involving fraud in carbon markets? Right now, without further guidance from either agency, the answer is yes.4 Comments to the Green Guides illustrate that businesses are concerned about the possibility of double enforcement and recommend that the FTC consult with the CFTC and other agencies asserting jurisdiction over carbon markets.

Below is a nonexclusive list of interrelated potential problems with carbon offsets that may lead to enforcement actions by the FTC or CFTC or both:

  • Fraudulent Claims that Offsets Are "Additional." "Additionality" refers to the guarantee that a business' use of carbon offsets leads to carbon reduction actually occurring in addition to any reductions that would have occurred in a business-as-usual scenario or as required by law. Several commenters in response to the FTC's proposed update of the Green Guides responded in favor of requiring that parties using offsets demonstrate additionality, and the CFTC's whistleblower alert specifies that a fraudulent or deceptive claim about additionality in the material terms of a carbon offset constitutes misconduct that could lead to enforcement. Parties using offsets should take care to understand the actual carbon reduction or removal linked to the offset and ensure that the reduction or removal is "additional."
  • Double Counting and Ghost Credits. The CFTC has stated that it is examining fraud in the underlying spot markets related to "ghost credits" (illusory offsets), as well as double counting of offsets (when the same offset is claimed by more than one entity without an additional carbon benefit). Ghost credits and double counting exist because there is currently no legal requirement that companies verify the quality of offsets used to make climate claims, although many parties are currently voluntarily verifying through bodies such as the Integrity Council for the Voluntary Carbon Market (ICVCM). Comments to the Guides supported the idea that verification of the quality of offsets should be required for their use. Likewise, entities have suggested that the CFTC create a registration framework for offsets, offset registries and offset brokers and conduct greater oversight of the existing registries; however, it is not clear that these actions are within the CFTC's authority. Companies should be careful not to make marketing claims about the use of offsets to create a "net‑zero" supply chain, for example, before verifying that the offsets exist and are not being double-counted.
  • Fraudulent Claims Related to Sustainability and ESG. The CFTC and FTC could both potentially bring an enforcement action based on a company's fraudulent use of offsets to create a "sustainable" business in line with its ESG goals. The FTC asked whether it should provide specific guidance on the use of "sustainability" or "sustainable" claims, given that Guides do not currently define the terms. In response, commenters criticized some companies' current use of offsets to substantiate misleading sustainable or net‑zero claims. Similarly, the CFTC's new Environmental Fraud Task force will specifically look for "material misrepresentations regarding ESG products or strategies."5 It is difficult for companies to know when statements about sustainability and ESG in relation to carbon offset trading, projects or marketing are fraudulent because the terms are not currently defined in the Guides or by the CFTC.


The CFTC has limited resources, and the actions discussed above signify that carbon markets are an area of increased focus for the CFTC. As agency enforcement in carbon markets develops alongside the markets themselves, businesses will face increasing challenges when both trading in carbon offsets and making advertising claims based on the use of offsets. We anticipate that actions of the FTC and CFTC, among other agencies, will overlap in the carbon market space. Agency authority over carbon markets has not yet been tested in courts, although it is expected that these challenges are coming.

In the meantime, businesses will need to comply with agency actions concerning carbon markets to avoid adverse enforcement consequences. The authors, along with other members of Holland & Knight's Greenwashing Mitigation Team, are well suited to provide advice about carbon markets, particularly as it relates to greenwashing and the CFTC's regulations and guidance.


1 See Holland & Knight's previous alert, "FTC Seeks Input on Potential Updates to Its Green Guides," Dec. 19, 2022.

2 See Holland & Knight's previous alert, "FTC Proposes to Clarify Green Guides for Climate Claims Based on Carbon Offsets," June 29, 2023.

3 7 U.S.C. § 9(1).

4 Note that U.S. Department of Justice (DOJ) policy under President Trump discouraged such "piling on" by encouraging coordination between the DOJ and other enforcement agencies such as the CFTC in imposing multiple penalties on a company in relation to investigations of the same misconduct. See "Deputy Attorney General Rod Rosenstein Delivers Remarks to the New York City Bar White Collar Crime Institute," May 9, 2018.

5 While the CFTC was likely referring to financial products marketed as having ESG benefits, it is unclear how broadly the CFTC will apply this assertion of authority.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

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