Informational only
Nothing here is investment advice. Talk to a regulated adviser before you invest.
People who ask how to invest in carbon credits usually mean one of two different markets. Compliance markets are run by governments; voluntary markets are where companies and individuals buy credits to offset or contribute. They work very differently as investments.
Compliance allowances and futures
In the EU Emissions Trading System, companies in covered sectors must hold an allowance for each tonne they emit, and allowances are auctioned and then tradedSource 1. According to ESMA, three European trading venues offer contracts on EU allowances: EEX in Germany, ICE Endex in the Netherlands and Nasdaq Oslo in Norway. They offer daily contracts, futures with various maturities and options on futures, each covering 1,000 allowancesSource 2.
ESMA also reports that investment funds take part in this market, mostly through futures with less than a year to run and through optionsSource 2. Allowance prices move with policy decisions, because governments set the supply.
Voluntary carbon credits
Voluntary credits are bought mainly to be retired, and retired credits can’t be recirculated or resoldSource 5. Holding unretired credits as an investment is possible but risky: there is no single exchange price, and a credit can lose value if the quality of its methodology is questioned. Our guides to carbon registries, CCP labels and carbon credit ratings explain how credits are recorded and how quality is judged.
Scams and misconduct
Carbon credit investment scams are common. The UK’s FCA warns that investors are usually contacted out of the blue and offered carbon credits as investments, and that many have reported they can’t sell or trade themSource 3. In the US, the CFTC asked for tips about carbon market misconduct, including “ghost” credits, double counting and manipulative tradingSource 4.
Our guide to carbon credit scams lists the warning signs. If you want to buy credits to cut your own footprint rather than to invest, start with how to buy carbon offsets, and see voluntary vs compliance markets for how the two markets differ.
Guides in this section
- Can you invest in carbon credits? compares the routes, from allowance funds to holding voluntary credits.
- Carbon credit ETFs explains what allowance funds hold and how futures rolling affects them.
- EU ETS allowances covers the EU Emissions Trading System: auctions, futures and who can hold allowances.
- How to sell carbon credits is for holders and project owners, including people sold credits as an investment.