Can I Sell Carbon Credits on an Exchange?

Sell Carbon Credits on an Exchange

A carbon credit is an allowance to emit a specific amount of CO2 that can be sold, traded or retired. Individuals, corporations and governments use carbon credits to offset their own greenhouse gas emissions. Carbon credits are most often created through agricultural or forestry practices, although they can be made by nearly any project that reduces, avoids, destroys or captures greenhouse gases. The most common markets for carbon credits are compliance markets governed by cap-and-trade programs, and the voluntary market. The latter has accelerated this year due to new corporate net-zero emission goals and interest in the Paris climate agreement to limit global warming.

The main goal of carbon credit exchange is to encourage companies to reduce their greenhouse gas emissions by letting them buy and sell the credits produced by others. The system is similar to the cap-and-trade program that cuts acid rain by allowing companies that produce sulfur dioxide to trade excess permits, or save them up to meet their cap.

Carbon credits can be bought and sold in two different ways: The compliance market, regulated by government-run programs such as the California Cap and Trade Program, and the voluntary market, governed by international agreements such as the Kyoto Protocol. In the former, companies are restricted to a certain number of permits and must reduce their emissions to meet this cap. They can either buy and sell carbon credits to cover their emissions or pay middlemen to offset their emissions with projects such as planting trees.

Can I Sell Carbon Credits on an Exchange?

Several environmental commodity exchanges, mostly in North America and Europe, list carbon credits for sale and work with registries to enable transactions. Purchasing carbon credits on an exchange is faster and easier than buying them directly from a developer or broker. In the latter case, buyers must carefully review the portfolio of projects offered by a retailer and closely scrutinize purchases from projects that the broker or developer has developed or owns.

In addition to listing carbon credits, some of these exchanges also act as traders. Retail traders typically purchase large numbers of credits from suppliers, bundle them into portfolios that range from hundreds to thousands of equivalent tons of CO2, and then sell these to end buyers, typically charging a fee or revenue share.

In the voluntary market, many buyers are looking for credits that have been verified by a third party as being produced and sequestered according to specified criteria. The verification process is time consuming and difficult, and it’s important for end buyers to look into the specific characteristics of each credit they buy. This can prevent them from getting “ripped off” by a fraudulent project. For example, a credit that claims to be a verified emission reduction from an agriculture or forestry project must show the metric ton of CO2 that it reduced, provide proof of retirement upon project maturity and offer additional social or biodiversity benefits. There are various certifying bodies that verify projects, including the American Carbon Registry, the Verified Carbon Standard and the Climate Action Reserve.