Executive
summary

Executive summary

Carbon markets (i.e., removals and avoidance markets) play an essential role in achieving global climate targets, by supporting the flow of finance into carbon removals and abatement projects during the transition to a net zero economy.¹ For several decades, policymakers, market participants, non-governmental organisations and other stakeholders have attempted to build robust carbon markets and increase demand.

Despite notable market activity and green shoots of best practice, attempts to build a market of any size have largely failed. Where the primary spot market hovers at less than US$1-2b of traded value each year, some estimates suggest it may need to rise to US$1t a year, to meet climate requirements.² EY analysis reveals commitments to buy carbon via direct offtake agreements have grown rapidly in the last two to three years. In 2024, US$3b of offtake agreements were announced. This trend has accelerated in 2025, with H1 alone seeing direct offtake agreements valued at over US$7b.³

However, carbon markets have evolved into a bespoke, esoteric, bilateral series of transactions between corporates. This contrasts with established markets such as energy, minerals and commodities, which have standardised assets, contracting structures, liquidity, depth, posted prices and accessibility. These common characteristics help enable them to function robustly and at significant scale across the globe, to help fulfil their role to keep economies moving and meet our most fundamental resource needs.

Rather than re-inventing the wheel, carbon markets should adopt similar, tried-and-tested concepts and frameworks that attract financial markets, wider investors, buyers and regulators necessary to scale.

Graph 1. Total spot and offtake traded carbon value in the voluntary carbon markets⁴

_¹_{See “Technical note” to cover the use of the term carbon, which for these purposes covers all GHGs}_.
²_{See for example BloombergNEF}_{.
³ EY-Parthenon analysis of publicly announced offtake agreements, 2025.
⁴ EY-Parthenon analysis. 2025 data for spot is assumed, given that data for this part of the market typically lags behind. We have assumed that the market will contract as before so ¼ is assumed for the current period.}

This report, authored by EY and supported by a significant number of market participants, outlines how to create greater legal, accounting, data and demand clarity for carbon, by taking a market-focused approach to building carbon markets. While recognising the value that participants have added to date, this paper examines how a market-focused approach could help build voluntary carbon markets (VCMs), drawing on a more orthodox and recognised infrastructure, frameworks and practices.

A core theme running through the paper is the need for all jurisdictions to consistently treat carbon as an asset class like other commodities. Legal practices should help define this definition, and enable basic legal requirements to be met, such as taking security over assets, and clarifying title and rights to extract and sell carbon. It is important to provide clarity over technical accounting standards for carbon on balance sheets and through profit and loss statements (P&Ls). For buyers, carbon as an asset should meet liabilities such as emissions trading requirements. Existing regulatory frameworks should be extended or applied to carbon markets to support market confidence. Data and market infrastructure should support the clear calculation of carbon project impact, fungibility of one tonne of carbon (to the greatest extent possible), and assurance over the processes to establish this impact.

Today’s value chain needs to evolve towards an infrastructure, controls, governance and data capable of administering a US$1t market. This calls for: more robust assurance processes to evidence projects’ carbon impact; carbon registries to facilitate recognisable market and legal processes; and carbon methodologies to support the fungibility of carbon and processes that can withstand financial audits.

What makes carbon unique is that without recognition of individual corporate liabilities, there is little commercial reason to purchase it — beyond channelling finance or offsetting corporate emissions. In building emissions trading schemes (ETS), governments recognise the need to manufacture a carbon market where organisations can support scaling solutions or investments. Carbon could be connected to ETS and other compliance schemes (including carbon border adjustment mechanisms) and taxes. Such a move supports the accounting position, but also incentivises corporates to buy carbon, and redirect money from buying ETS ‘permits’ towards projects which actively remove and abate carbon, creating jobs, opportunities and spillover effects worldwide.

Without carbon markets, the world would not meet its climate commitments. The Intergovernmental Panel on Climate Change (IPCC) is clear that 100-1,000 megatons tonnes of CO_² equivalent must be removed from the atmosphere for the world to meet its net zero targets. It is acknowledged that corporates across the globe are committed to meeting this challenge via high-quality carbon markets, spurring tangible action to build the markets we need to achieve our goals.

List of recommendations

Supporting demand Main recommendation: Create demand utility for the use of carbon units for corporates, notably through integrating carbon units into emissions trading schemes.
Sub-recommendations	Responsibility
Governments should support consistent standards benchmarks (i.e., ‘principles’) in the market, rather than allowing multiple overlapping standards to proliferate. These filter the number of carbon methodologies in the market but do not per se support the delivery of fungibility – a limitation the market needs to recognise.	Government departments responsible for carbon markets
Standards bodies should provide clear, aligned positions on use of carbon units against net zero targets. Governments should set these expectations, and if standards bodies fail to act, then governments should step in to provide clarity.	Governments, leading to action from Science Based Targets initiative (SBTi), Oxford Principles, etc
Policymakers should integrate carbon units into emissions trading schemes (ETS). This should be done in a consistent manner, particularly for requirements and criteria related to credits standards, project types and market infrastructure – to drive market integrity and coherence.	Government departments responsible for ETS
Governments should seek to implement Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) schemes domestically, acknowledging how carbon projects can support aviation to meet net zero commitments. Penalty regimes can incentivise airlines to comply with purchases of eligible units (i.e., carbon reductions) where required. It is important to help ensure that airlines are not double-charged where they are already covered by ETS schemes.	Government departments responsible for transport
Direct offtake contracts should include best-in-class verification and methodology clauses, which use consistent market approaches and standards. Rather than re-inventing ways to measure carbon, parties should agree a small number of approaches to support carbon fungibility. Contracts should be designed with secondary trading in mind, to support the on-sell to this market where required.	Legal profession / buyers’ clubs
Buyers’ clubs can deliver important demand signals and enable buyers to enter the market more efficiently. Given the nascency of these clubs, the market would benefit from a greater range of approaches, especially to incentivise the immediate delivery of carbon. Project developers and intermediaries should focus on delivering immediate cashflow and more efficient sequestration processes, working with carbon standards where needed to update the way they verify ‘stacked’ projects.	Buyers of carbon
Governments should seek to connect carbon markets to carbon capture, utilisation and storage (CCUS) and other similar infrastructure, particularly where they deploy taxpayer funding to support the build and execution of carbon sequestration technologies. This could allow governments to reduce taxpayer funding and/or better target funds towards remaining market failures.	Government departments responsible for CCUS
Governments can explore using contracts for difference for carbon and carbon removals (like in UK renewable energy markets), to support innovative technologies, pricing clarity, and demand in event of market failure.	Government depts responsible for carbon markets

Creating a financial market

Recommendations for consideration Main recommendation: Market participants should employ recognised financing and risk practices for carbon markets to support liquidity and risk management.
Sub-recommendations	Responsibility
Banks and financiers should support project developers to bridge the financing gap by developing structured products and pre-financing agreements, and facilitating offtake agreements early in project lifecycles. Market makers, brokers and exchanges should collectively enhance liquidity through price transparency. By developing the role of custodian in a maturing traded market, market participants provide secure and transparent custody of carbon credits.	Financial market participants – banks, exchanges and other financial institutions (FIs)
The market should seek to achieve greater standardisation across methodologies and verification processes. Major exchanges, brokers and market actors should promote price transparency by regularly publishing prices for spot and other transactions. Providers of indexes and benchmarks should develop carbon indexes to drive price transparency.	Carbon and financial market infrastructure – registries, exchanges
Encourage the innovation of structured products, such as carbon-backed securities, to broaden market participation. Credit rating agencies should play an active role in the market, providing investment grade ratings for products. Corporates should use hedging strategies to hedge against price and delivery risk.	Financial market participants – traders, credit ratings and end buyers

Accounting treatment

Recommendations for consideration Main recommendation: Develop accounting treatment to recognise carbon units as an asset on financial statements.
Sub-recommendations	Responsibility
Chief Financial Officers (CFOs) should seek to work with their auditors to recognise carbon units as assets on balance sheets, in line with International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principle (GAAP) existing accounting standards.	CFOs, auditors
Legal ownership of carbon units will need to be clear in order to support accounting for carbon in financial statement, in line with recommendations in chapter five.	Government legal departments
CFOs should help ensure that carbon credits intended to settle ETS liabilities are recognised and derecognised in line with the relevant accounting standards.	CFOs

Legal nature of carbon

Recommendations for consideration Main recommendation: Clarify the legal nature of carbon units in law within jurisdictions globally
Sub-recommendations	Responsibility
Governments should clarify the initial owner of carbon associated with land rights, whether the default position is that the private landowner has rights over the carbon attributes, or, in the case of Crown land, government has rights to the carbon.	Government legal departments
Governments should clarify the permissions needed to sequester carbon, leveraging existing planning regimes, rather than requiring new licensing regimes.	Government legal departments
Governments should provide legal clarity as to who owns the subsurface property used for carbon storage and, where appropriate, establish licensing regimes for physically storing carbon subsurface.	Government legal departments
The definition of carbon credits/units should be made explicit and consistent in law within – and ideally across – jurisdictions. By serialising carbon units, registries can distinguish individual carbon units to determine property rights.	Government legal departments
The UK Government should extend the Digital Assets Bill to cover carbon units.	UK Ministry of Justice
English and Welsh law provides a strong basis for the legal framework to govern the transfer of carbon as an asset. The market should seek to use these laws to underpin contracts transferring the ownership of carbon.	Market participants trading carbon
Carbon depositories (whether registries as recognised today, or as a carbon depository) should contractually obligate and recognise their obligation to verify or inquire into the validity of legal title to carbon credits listed on its registry. These entities should also provide the processes and infrastructure to give access to this information, to facilitate the securitisation of assets. These assets should include land, carbon rights and any other assets that are commonly used for security in comparable markets. EY team believes this function should be provided by robust market infrastructure, either run by governments or attached to exchanges that can facilitate finance, securitisation and enforcement of legal rights.	Financial market infrastructure – exchanges
Host governments should continue to provide letters of authorisation or other methods, to legally clarify that carbon can be transferred internationally. These letters should present an unambiguous legal position of the host government’s position, as well as the legal rights and responsibilities of parties.	Government energy departments

Regulatory treatment

Recommendations for consideration Main recommendation: Existing regulatory frameworks should be applied to carbon markets, and a adopt a phased and principles-based regulatory approach that has been successful with other assets.
Sub-recommendations	Responsibility
Adopt a phased, principles-based regulatory framework for voluntary carbon markets, modelled on the UK’s digital assets regime.	Financial regulators, governments
Establish a clear and harmonised legal classification for carbon credits within financial and environmental regulatory frameworks, drawing from approaches taken for UK’s crypto assets and EU Emission Allowances (EUAs).	Financial regulators, government legal departments
Adopt a functions-based regulatory framework that distinguishes between environmental use cases (e.g., offsetting emissions) and financial market activities (e.g., trading, investing, securitising carbon credits). This approach helps ensure that activities posing financial risk or requiring investor protection are brought under appropriate oversight, while avoiding unnecessary regulation for other uses.	Financial regulators, environmental regulators
Require authorisation and oversight for carbon trading platforms and investment products that resemble traditional financial market infrastructure. This includes: Classifying high-volume or investor-facing carbon trading platforms as regulated venues (e.g., multilateral trading facility (MTFs)) Applying securities/fund regulations to carbon credit funds, exchange traded funds (ETFs) and structured products. Extending market abuse and disclosure rules to voluntary carbon instruments when pooled or traded for profit.	Financial regulators, governments
Apply existing anti-fraud and market abuse regulations (e.g., Market Abuse Regulation in the UK) explicitly to voluntary carbon credits. This includes prohibiting deceptive practices, insider trading and price manipulation.	Financial regulators, environmental regulators
Extend anti-money laundering/know-your-customer obligations to carbon credit exchanges, brokers, and intermediaries. Require customer due diligence, suspicious activity reporting, and financial crime controls.	Financial regulators
Establish and expand regulatory sandboxes and pilot programs specifically tailored to carbon market innovations. These sandboxes should support experimentation with technologies like blockchain-based credit tracking, tokenised carbon credits, AI-driven monitoring, reporting and verification (MRV) systems and novel financial instruments, and follow a phased approach.	Financial regulators, central banks
Apply existing anti-fraud and market abuse regulations (e.g., Market Abuse Regulation in the UK) explicitly to voluntary carbon credits. This includes prohibiting deceptive practices, insider trading and price manipulation.	Financial regulators, environmental regulators

Data

Recommendations for consideration Main recommendation: The market should use consistent data and standards to calculate carbon impact.
Sub-recommendations	Responsibility
The market should prioritise standardisation and develop a consensus on which methodologies to use. A clear, agreed-upon methodology per project type, endorsed by a standards body such as the International Organisation for Standardisation (ISO) or the Integrity Council for Voluntary Carbon Markets (ICVCM), and further endorsed by governments, would help to ensure consistent and comparable data across the market, improving the market's overall integrity.	ISO, ICVCM, government departments responsible for carbon markets
As the legal and accounting treatment of carbon credits becomes clearer, registries should evolve their capabilities to accommodate additional data requirements. Registries should manage the growing complexities of carbon credit ownership and transaction traceability. They should also prioritise digitisation and centralisation of registry data to facilitate greater accuracy and transparency.	Registries and exchanges
To improve verification processes, the market should use digital tools as a standard. There should be clear data standards, set by a standard setter such as ICVCM. Methodologies and models for assessing carbon impact should be transparent and, ideally, consistent – rather than competing with one another. Through improved communication and interoperability across different types of verifiers, changes in project performance can be captured, to help buyers manage risk and respond in a timely manner.	ICVCM, carbon verifiers
Policymakers should work together with market participants to adopt a standardised reporting framework that will: 1. Help ensure that carbon credit transactions are auditable in future. 2. Improve transparency and communication with stakeholders.	Government departments responsible for carbon market reporting