A carbon market is a system where companies trade carbon emission allowances, turning the right to emit into a financial asset. It’s a key policy tool that uses market forces to reduce greenhouse gas emissions efficiently by channeling investment toward low-cost reduction opportunities.

Compliance markets
Regulated by governments, where companies must hold enough allowances to cover their emissions. Non-compliance leads to penalties.
Used by organizations to offset emissions on a voluntary basis, often as part of carbon neutrality or ESG goals.

The primary product traded is the carbon allowance, but many systems allow partial use of carbon offsets from approved projects. In some schemes, up to 10% of compliance obligations can be met using these verified reductions.
A successful carbon market requires strong monitoring, reporting, and verification (MRV) systems, transparent pricing, and broad participation. As more countries adopt carbon pricing, carbon markets are expected to become a core part of global climate strategy, supporting the path to net-zero emissions.