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Definition

Carbon Markets

Carbon markets trade allowances created by law or credits issued under voluntary programmes, giving covered emissions or verified reductions and removals a price.

What are carbon markets?

Carbon markets trade units linked to greenhouse gas emissions. Compliance markets are created by law and use allowances, which let covered companies emit one tonne of carbon dioxide equivalent (CO2e) per unit. Voluntary programmes issue credits after an independent third party verifies a project's reductions or removals.

Why do carbon markets matter to you?

Most suppliers do not trade allowances, but carbon costs can appear in energy, freight or material prices. An EU customer may request CBAM production data. If you buy voluntary credits, check the project, quantity and public record. A retirement record shows that the credits were taken out of circulation and cannot be used again.

How do compliance markets and CBAM work?

Under the EU Emissions Trading System (EU ETS), covered companies report emissions annually and surrender allowances. The UK Emissions Trading Scheme (UK ETS) covers industry, power, aviation and maritime. Domestic maritime entered 1 July 2026; its 2026 and 2027 allowances are due 30 April 2028.

CBAM's definitive regime began on 1 January 2026. EU importers whose covered CBAM goods exceed the single 50-tonne mass threshold may use Commission default values or verified actual emissions. CBAM certificates are separate units, but their price is calculated from EU ETS auction clearing prices. The first declaration for 2026 imports is due 30 September 2027.

What mistakes should you avoid?

  • Assuming every supplier must trade allowances.
  • Treating allowances and voluntary credits as interchangeable.
  • Using actual CBAM data without the required verification.
  • Quoting a carbon price without naming the market and date.

Are most suppliers legally required to participate?

No. The legal duty falls on a covered operator or importer. A non-EU producer may instead provide verified data to a customer.

What happens in a voluntary carbon market?

A carbon-crediting programme records each issued credit in a registry. Buyers retire the quantity used for a claim. Public issuance and retirement records show which credits were created and taken out of circulation; they do not prove the credit's quality or replace ETS or CBAM duties.

Example

Hypothetical scenario: Suppose a German importer expects to bring in 100 tonnes of aluminium profiles from a Turkish manufacturer during 2026, taking its total CBAM imports above 50 tonnes. It asks for actual embedded-emissions data instead of using the Commission's default value.

The importer needs the installation name, reporting period, shipment quantity and customs code, which identifies the product. It also needs the production route, meaning how the aluminium was made, and the direct emissions per tonne of aluminium. The supplier also gives the total for the shipment. Aluminium appears in CBAM Annex II, the list of goods for which only direct emissions count.

The supplier prepares an emissions report from production and fuel records. An accredited verifier, an independent checker approved under EU rules, reviews the calculation and evidence. The supplier hands over the emissions calculation and verification report through the CBAM Registry.

The importer retrieves both files and decides whether the verified actual value or the Commission default will enter its declaration. For illustration only, 6.0 tonnes CO2e per tonne multiplied by 100 tonnes gives 600 tonnes CO2e. An illustrative default of 8.0 tonnes CO2e per tonne gives 800 tonnes CO2e. The choice changes the emissions figure used to work out the CBAM certificate obligation. The German importer files the declaration and surrenders certificates.

Where it comes up

EU ETS annual emissions monitoring and allowance surrender for covered operatorsEuropean Commission, About the EU ETSOfficial sourceUK ETS verified emissions report and allowance surrender for covered operatorsUK ETS Order 2020 participation guidanceOfficial sourceCBAM definitive-regime declaration and verified embedded-emissions data for actual valuesEuropean Commission, CBAM communication and newsOfficial source

Related terms

Carbon Credit

A carbon credit is a tradeable unit representing one metric tonne of carbon dioxide equivalent reduced or removed by a project, recorded in a registry and retired when used for a claim.

Carbon Accounting

Carbon accounting is the process of defining a company’s greenhouse gas inventory, collecting activity data, applying emission factors, and reporting Scope 1, Scope 2, and Scope 3 emissions on a consistent basis.

Carbon Emissions

Carbon emissions strictly mean carbon dioxide (CO2) releases, although business reports often use the phrase loosely for all greenhouse gas emissions converted to carbon dioxide equivalent (CO2e).

Decarbonization

Decarbonization is the planned reduction of greenhouse gas emissions from a company’s operations and value chain through measurable changes in how it uses energy, fuel, materials and suppliers.

Sources

  • European Commission

    EU ETS cap-and-trade method, one-tonne allowances, annual emissions reporting and allowance surrender

    2026-08-18

  • UK ETS Authority

    Covered sectors, 1 July 2026 maritime start, verified reporting, and the 30 April 2028 surrender date for 2026 and 2027 maritime emissions

    2026-08-18

  • European Commission

    1 January 2026 definitive-regime start, 50-tonne threshold, 30 September 2027 first declaration, and actual-versus-default treatment

    2026-08-18

Sources checked 2026-08-18

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Carbon Markets Definition | Keslio