Today’s carbon markets are the result of more than 30 years of policy experiments. Some were run by governments, some by non-profits, and many borrowed from each other. Knowing the history explains why there are so many standards, unit names and rules, and why quality rules keep being tightened.
This page is part of our Learn section. For how the market works today, read what the carbon market is.
Before carbon: trading sulphur dioxide
The idea of trading permits to pollute was tested first on acid rain, not climate change. Title IV of the 1990 US Clean Air Act Amendments set up the Acid Rain Program, a market-based cap-and-trade program for sulphur dioxide from power plants. It began in 1995Source 1.
The model was simple: set a cap on total emissions, hand out allowances, and let companies trade them. The EU’s carbon market works the same way: a cap on total emissions, with allowances that companies trade among themselvesSource 5.
The Kyoto era: the first carbon credits
The UN Framework Convention on Climate Change was adopted in 1992 and entered into force on 21 March 1994Source 2. Its Kyoto Protocol, concluded in Kyoto on 11 December 1997, entered into force on 16 February 2005Source 3.
Kyoto bound 37 industrialised countries and the European Union to emission targets. Once there were targets, emission reductions had an economic valueSource 4. To help countries meet them, it created three market mechanismsSource 4:
- International emissions trading
- The Clean Development Mechanism (CDM), under which projects in developing countries earned certified emission reductions (CERs), one per tonne of CO₂
- Joint implementation
The CDM’s detailed rules were adopted in 2001 in Marrakesh, and the first CDM project was registered in 2005 in BrazilSource 4. Its project cycle of design, validation, registration, monitoring, verification and issuance is still the basic template for how carbon credits are created.
Compliance markets and voluntary standards grow
In 2005 the EU launched its Emissions Trading System, which the European Commission calls the world’s first carbon marketSource 5. At the same time, a voluntary market was taking shape for companies and people who wanted to act without being required to.
Scrolls sideways to show every column.
| Year | Event |
|---|---|
| 1995 | US Acid Rain Program begins sulphur dioxide cap-and-trade |
| 1996 | ACR says it sets up the world’s first carbon registry |
| 1997 | Kyoto Protocol concluded, creating the CDM |
| 2001 | CDM rules adopted in Marrakesh; California Climate Action Registry created |
| 2003 | Gold Standard established by WWF and other NGOs |
| 2005 | Kyoto enters into force; EU ETS launched; first CDM project registered |
| 2007 | Verra founded |
| 2015 | Paris Agreement adopted |
| 2016 | ICAO adopts CORSIA |
| 2021 | ICVCM emerges; CORSIA pilot phase begins |
| 2023 | ICVCM releases the Core Carbon Principles |
| 2024 | First CCP-Eligible programs and CCP-labelled credits; CORSIA first phase begins |
Sources: EPASource 1, ACRSource 6, UN Treaty CollectionSource 3, UNFCCCSource 4, Climate Action ReserveSource 7, Gold StandardSource 8, European CommissionSource 5, VerraSource 9, ICAO via Gold StandardSource 10, ICVCMSource 11Source 12Source 13 and GOV.UKSource 14.
Gold Standard was set up to make sure CDM projects also contributed to sustainable developmentSource 8. Verra was founded by environmental and business leaders who saw the need for more quality assurance in voluntary marketsSource 9. Our page on carbon standards compares them today.
The Paris Agreement and a new rulebook
The Paris Agreement, adopted by 196 parties on 12 December 2015, entered into force on 4 November 2016Source 10. Each country sets its own target, called a nationally determined contribution (NDC). Its Article 6 lets countries cooperate toward those targets, including by trading, and sets up a crediting mechanism operated centrally through the UNFCCC that succeeds the CDMSource 15. At COP29 in Baku, countries adopted the remaining guidance, which the UNFCCC describes as completing a nine-year journey to fully operationalise Article 6Source 15.
Aviation got its own scheme. ICAO adopted CORSIA on 6 October 2016Source 10, and its pilot phase ran from 2021 to 2023Source 14. See CORSIA explained and Article 6 explained.
The integrity push
As the voluntary market grew, so did questions about whether credits delivered what they claimed. The ICVCM emerged in 2021, after the Taskforce on Scaling Voluntary Carbon Markets won the backing of more than 250 organisations, and released its Core Carbon Principles in 2023Source 11.
In April 2024 it named ACR, the Climate Action Reserve and Gold Standard as the first CCP-Eligible programsSource 12. In June 2024 it approved the first methodologies whose credits could carry the CCP label, for landfill gas and ozone-depleting substances, covering about 27 million creditsSource 13.
What the history means for buyers
Credits from different eras were issued under different rules. An old CDM credit, a 2010 forestry credit and a 2025 CCP-labelled credit can all say “1 tonne”, but they weren’t checked the same way. Look at the standard, the methodology and the vintage before you buy.
Where things stand now
Carbon markets are now split between government compliance schemes and a voluntary market with its own standards and quality labels, linked by Article 6 and CORSIA. Our page on voluntary vs compliance markets explains the split. Whatever the market, the order of action stays the same: reduce your own emissions first, then use credits for what is left.