The World Federation of Exchanges (WFE), the global industry association for exchanges and clearing houses, has published its response to the UK Government’s consultation on Voluntary Carbon and Nature Markets, welcoming the ambition to raise standards and foster market integrity.
Exchanges will play a critical role in enabling fair, transparent, and effective carbon and nature markets by providing secure infrastructure for trading, better price discovery, and greater investor protection. The WFE supports the Government’s principles-based approach to developing these markets and efforts to align with international standards and best practice.
The key recommendations the WFE set out in the response are as follows:
- Adopt a “climate-first” approach due to greater maturity and standardisation in the carbon credit space compared to nature credits.
- Define legal rights for carbon and nature credits
- Zero-rate VAT on carbon credit transactions to encourage market participation.
- Pursue a whole-of-Government approach is to align legal, tax, accounting, and prudential systems with the goal of supporting carbon and nature markets.
- Maintain flexibility on international standards to accommodate a rapidly evolving market landscape and allow room for innovation.
- Require all firms in scope of the UK’s TCFD and prospective SDR regimes to publish transition plans, incentivising companies to take responsibility for their emissions and sustainability impacts. Facilitate participation in Article 6 carbon credit mechanisms under the Paris Agreement to enhance liquidity and scalability.
Throughout, the WFE’s response underscores the importance of global interoperability through homogenous product specification, especially around emerging nature-related regulations and standards.
Nandini Sukumar, CEO of the WFE, said, “Carbon and nature markets hold enormous potential to accelerate the transition to a sustainable economy when coupled with other measures to decarbonise such as robust net zero targets and transition plans. But to succeed, they need the same legal clarity, tax neutrality and investor protections we expect from any mature financial market. To further support the development of these markets, we urge policymakers to remove VAT on carbon credits and recognise them as financial instruments.”
Read the full response here.
