Informational only
This page explains how carbon investing works. It is not financial advice.
“Investing in carbon credits” can mean several different things. Investment products that follow carbon prices mostly track government compliance markets, where companies must hold allowances for the emissions they produce. The voluntary market, where companies and people buy credits to offset, works very differently. This page sets out the routes side by side. It is part of our invest section.
Ways to get exposure
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| Route | What you own | Access | Liquidity |
|---|---|---|---|
| Carbon allowance ETFs | Fund units tracking futures | Brokerage account | Traded on a stock exchange during market hours |
| Allowance futures | Contracts on EU/UK allowances | Futures broker | Exchange-traded standard contracts of 1,000 allowances |
| Project developer shares | Company equity | Stock market | Depends on the company’s shares |
| Holding voluntary credits | Credits on a registry | Retailer or broker | No central exchange price; buyers can be hard to find |
Availability varies by country.
Carbon allowance funds
Exchange-traded funds and exchange-traded commodities are the route most people can reach through an ordinary brokerage account. Most hold allowance futures. KraneShares’ KRBN, for example, tracks an index of futures on EU, California, RGGI, UK and Washington State allowancesSource 5. A few products hold allowances directly: HANetf describes its SparkChange product as an exchange-traded commodity that is fully backed by physical EU allowancesSource 6.
The EU is not the only allowance market these products follow. KRBN’s index also includes allowances from California, the US Regional Greenhouse Gas Initiative, the UK and Washington StateSource 5, so a single fund can spread exposure across several schemes with different rules.
These products track allowance prices, not voluntary offsets. Buying them doesn’t retire any credits or cut anyone’s emissions on your behalf. Our guide to carbon credit ETFs explains how they work and what they cost.
Allowance futures
In the EU Emissions Trading System, companies in covered sectors must hold allowances for their emissions; allowances are mostly sold at auction and then tradedSource 1. According to ESMA, three European venues offer contracts on EU allowances: EEX in Germany, ICE Endex in the Netherlands and Nasdaq Oslo in Norway. Each contract covers 1,000 allowancesSource 4. ESMA found that investment funds mostly trade futures with less than a year to run, and optionsSource 4.
The futures market is mostly a professional one. ESMA found that EU allowance derivatives are dominated by compliance companies holding long positions to hedge, trading with investment firms that hold short positions to make a marketSource 4.
Individuals can’t bid at EU auctions: bidders must be covered operators, investment firms, credit institutions or other authorised biddersSource 2. Holding allowances directly needs an account in the Union Registry, which is opened through a national administrator after document checksSource 3. See EU ETS allowances for how the market works.
Holding voluntary carbon credits
Voluntary credits are mainly bought to be retired, and retired credits can’t be recirculated or resoldSource 8. Holding unretired credits as an investment is possible but needs a registry account. On the Verra Registry, ownership can only be transferred between registry accounts, and credits can’t be traded as paper certificatesSource 7. A “certificate” from an investment firm is not the credit itself.
There is no single exchange price for voluntary credits, and quality decisions can change what a credit is worth. In 2024, for example, the ICVCM decided that credits from eight current renewable energy methodologies would not receive its CCP quality labelSource 9. Our guides to carbon registries, CCP labels and carbon credit ratings explain how holdings are recorded and how quality is judged. If you already hold credits, how to sell carbon credits covers the options.
Risks
Allowance prices move with policy decisions. Voluntary credits have no central exchange price and can lose value if a methodology is downgraded.
- Policy risk. Governments set the cap on allowances, and the EU tightens its cap each year in line with its climate targetsSource 1. Changes to the rules can move prices sharply.
- Volatility. ESMA reported that EU allowance prices rose from €8 in January 2018 to a record €96 in February 2022, then fell below €70 in a sharp sell-off in early March 2022Source 4.
- Product risk. Funds can track their market imperfectly, charge fees and close. Read the prospectus of any product before you buy.
- No compensation. In the UK, carbon credits aren’t regulated by the FCA, so the Financial Services Compensation Scheme and Financial Ombudsman Service don’t cover themSource 10.
Questions to ask before you put money in
- Which market does this product follow: EU, UK, California or voluntary credits?
- What do I actually own, and where is it held?
- Who regulates the seller, and what protection do I have if it fails?
- How would I sell, and to whom?
Scams and misconduct
Carbon credit investment scams
- Cold calls. The FCA says investors are usually called out of the blue and offered carbon credits as an investment; many have reported they can’t sell or trade themSource 10.
- Recovery offers. After a loss, fraudsters may come back with an offer to get your money back for a feeSource 10.
- Fake or double-counted credits. The US CFTC has asked for tips about carbon market misconduct, including “ghost” credits, double counting and manipulative tradingSource 11.
Our guide to carbon credit scams lists more warning signs. If you want to buy credits to cut your own footprint rather than to invest, see voluntary vs compliance markets for how the two markets differ.