"China's carbon trading program by its design isn't really capping emissions and showing reductions," Kramarchuk said, adding that details implemented in other sectors "would certainly drive the value of existing allowances."

There are various ways in which VCCs can be traded and various institutions involved in the process: brokers, exchanges, retail traders, advisors. VCCs issued by a given standard and stored in a registry managed or retained by this standard cannot be transferred to a registry of a different standard.

The structure of the voluntary carbon market

What is carbon credit and how it works?

A carbon credit is a certificate representing one metric ton of carbon dioxide equivalent that is either prevented from being emitted into the atmosphere (emissions avoidance/reduction) or removed from the atmosphere as the result of a carbon-reduction project. 

For a carbon-reduction project to generate carbon credits, it needs to demonstrate that the achieved emission reductions or carbon dioxide removals are real, measurable, permanent, additional, independently verified, and unique (see sidebar, “Criteria for carbon credits”). 

If a project meets these criteria—as specified by independent standards such as Gold Standard and Verified Carbon Standard (VCS)—credits can be issued. The impact of a carbon credit can only be claimed—that is, counted toward a climate commitment—once the credit has been retired (canceled in a registry), after which it can no longer be sold. 

Table – Comparison of carbon markets in selected place

Guandong Province, The Mainland
European Union

Table – Comparison of carbon markets in selected place

Guandong Province, The Mainland
European Union

Five main players make up the engine of carbon markets.


Project developers represent the upstream part of the market. They set up the projects issuing carbon credits, which can range from large-scale, industrial-style projects like a high-volume hydro plant, to smaller community-based ones like clean cookstoves. 


The downstream market is made up of end buyers: companies, organiztions – or individual consumers – that have committed to offset part or all of their GHG emissions. 


To link supply and demand, there are brokers and retail traders, just as in other commodity markets. Retail traders purchase large amounts of credits directly from the supplier, bundle those credits into portfolios, ranging from hundreds to thousands of equivalent tons of CO2, and sell those bundles to the end buyers, typically with some commission. 


Brokers buy carbon credits from a retailer trader and market them to an end buyer, usually with some commission. 


There is a fifth player unique to carbon markets. Standards are organizations, usually NGOs, which certify that a particular project meets its stated objectives and its stated volume of emissions. 

There are five qualities to be considered when measuring a high-quality carbon credit.


Simply put, the authenticity of carbon credits relies on how much emission reductions are made and how well the emission reductions are measured. These reductions must be based on robust methods with rigorous monitoring, reporting and verification (MRV) of a farm’s activities.

Effective measurements must avoid over- and under-estimation of carbon levels. Recording historical data before the carbon farming project began, with regular reporting of farm information throughout the process makes the data for verification more robust and reliable.


Additional or newly created carbon savings on top of baselines, that would otherwise not have happened without incentives, can be credited. Carbon farming projects are considered additional if:

  • it is expected to generate additional benefits over the baseline measurements
  • not required by law
  • it incentivises farmers to make change
  • it would not continue without carbon income
  • it is expected to respond to carbon generated income — that is the project would alter its practices if carbon income ceases during the project lifespan
  • generates significant economic benefit, including asset valuation


Carbon sequestration means lasting carbon storage —otherwise, no real emission reduction is created. Sequestered carbon must stay intact in soils or trees. And all avoided emissions are considered permanent (e.g., emissions associated with fossil fuel and fertiliser use). Otherwise, permanence reversal, or the loss of verified soil carbon sequestration must be managed to ensure all credits sold have a permanent impact.


Carbon leakage occurs when a farm causes an increase in greenhouse gas emissions outside the project boundary. For example, increasing the use of organic fertiliser on one farm may reduce the application of organic fertiliser on another farm (which is outside the carbon project area). One farm gains soil carbon, while the other farm loses soil carbon. The net result is zero. (An exception to this scenario is if organic fertiliser is sourced from systems that don’t apply the organic material to soils).


Verification ensures that a farm measures up to standard for carbon credits to be awarded. Usually, a third-party organisation takes the data from a farm to accurately assess whether changes have occurred in soil carbon levels overtime. The verification process determines if an emissions reduction and carbon sequestration has truly taken place as evidenced by a verification report.

Companies can participate in the voluntary carbon market either individually or as part of an industry-wide scheme              

Two key types of carbon markets.

Voluntary carbon markets 

Voluntary carbon markets (VCMs) comprise buyers (usually corporates) that voluntarily purchase carbon credits generated by projects that avoid or remove greenhouse gas (GHG) emissions to neutralise or compensate for their emissions.Each carbon credit is usually issued by self-regulated organisations and represents a tonne of emissions avoidance or removal. 

Compliance carbon markets 

On the other hand, compliance markets, such as the European Union Emissions. Trading System (EU ETS), provide a regulated mechanism for market. participants to trade allowances, each representing a permit issued by regulators. to emit a tonne of carbon emissions. Decreases in allowance supply enable emissions reductions as market participants seek to lower their emissions to minimise the cost of purchasing allowances.