Picture a farmer’s market, but instead of vegetables, the stalls sell permission to pollute. One stall is run by a government that caps how much industry can emit and auctions off allowances. The stall next door is run by a project developer selling credits from a wind farm in Kenya or a reforestation programme in Brazil. Both stalls sell something measured in tonnes of CO2, but the rules, the prices and the risks could not be more different. Welcome to carbon trading.
Carbon trading is the buying and selling of carbon credits or allowances that represent a set quantity of greenhouse gas emissions – typically one tonne of CO2 equivalent. It operates across two distinct markets: the compliance market, where governments require certain industries to hold permits for their emissions, and the voluntary market, where companies and individuals choose to purchase credits to offset emissions beyond any legal requirement.
🌿 Compliance Markets vs Voluntary Markets
🌿 Compliance (cap-and-trade) markets
In a compliance market, a government sets a cap on total emissions from regulated sectors and issues a limited number of allowances. Companies must hold enough allowances to cover their actual emissions each year. If they emit less than their allocation, they can sell the surplus. If they emit more, they must buy additional allowances on the market. The cap tightens over time, reducing total emissions. The EU Emissions Trading System (EU ETS) is the world’s largest compliance carbon market. EU ETS allowance prices ranged between EUR 60 and EUR 80 per tonne through 2025.
🌿 Voluntary carbon markets
The voluntary market has no government-imposed cap. Instead, project developers create carbon credits by funding activities that reduce or remove emissions – such as planting forests, protecting peatlands, distributing clean cookstoves or capturing methane from landfills. These credits are verified by independent standards bodies like Verra (which runs the Verified Carbon Standard) or Gold Standard. Companies then purchase and retire credits to claim they have “offset” a portion of their emissions. The voluntary market was valued at approximately USD 2.5 billion in 2025, with projections suggesting it could reach USD 7-35 billion by 2030.
🌿 Article 6 of the Paris Agreement
At the international level, carbon trading between countries is governed by Article 6 of the Paris Agreement. This framework, finalised at COP29 in Baku in November 2024 after nine years of negotiation, creates two pathways. Article 6.2 allows countries to trade emission reductions bilaterally through Internationally Transferred Mitigation Outcomes (ITMOs). Article 6.4 establishes a centralised, UN-supervised carbon market mechanism – effectively the successor to the Kyoto Protocol’s Clean Development Mechanism (CDM).
Progress has been slow. As of April 2025, over 90 Article 6.2 bilateral agreements had been signed globally, but only one ITMO transfer had been fully completed – between Switzerland and Thailand in January 2024. The first Article 6.4 credit issuance, originally expected by mid-2025, has been pushed to early 2026. Critics warn that weak transparency requirements and limited enforcement could undermine the integrity of the system.
🌿 The Problems with Carbon Offsets
The voluntary market has faced serious credibility challenges. Three fundamental problems recur:
- 🌿 Additionality – a credit should only be issued for emission reductions that would not have happened without the carbon finance. If a forest was already protected by law, selling credits for “protecting” it does not represent a real reduction. Proving additionality is difficult, and investigations have found many projects fail this test
- 🌿 Permanence – a tree that absorbs carbon today might burn down, be logged or die of disease tomorrow, releasing the stored carbon back into the atmosphere. Over 6 million carbon credits were invalidated in 2022 alone due to wildfires destroying forests designated for sequestration
- 🌿 Double counting – if a country claims an emission reduction toward its own climate targets and simultaneously sells a credit for the same reduction to a foreign company, the same tonne of CO2 has been counted twice. Article 6 addresses this through “corresponding adjustments” to national inventories, but implementation is incomplete
These issues have fuelled growing scepticism. The voluntary market’s total value dropped from USD 1.87 billion to USD 723 million between 2022 and 2024 as quality concerns intensified. The Integrity Council for the Voluntary Carbon Market (ICVCM) has developed Core Carbon Principles to raise standards, and high-quality credits now trade at more than three times the price of low-rated ones – but the gap between the best and worst credits on the market remains vast.
🌿 Carbon Trading in Ireland
Ireland’s engagement with carbon trading is primarily through the EU ETS, which covers power stations, large industrial facilities, cement plants and intra-EU aviation. Irish companies in these sectors must purchase EU Allowances (EUAs) to cover their Scope 1 emissions. The carbon price signal from the EU ETS has been a significant driver behind the shift from coal and peat to gas and renewables in Irish electricity generation.
On the voluntary side, Ireland does not yet have a formal domestic carbon credit standard, though work is underway. Organisations like Sustineo are developing Irish woodland carbon standards, and pilot projects such as FarmCarbon-EIP in the midlands and Peatland Finance Ireland are exploring how Irish landowners might generate and sell credits from peatland restoration or carbon farming activities. The EU’s Carbon Removal Certification Framework (CRCF), adopted in December 2024, will provide a standardised methodology for certifying carbon removals from agriculture, forestry and peatland rewetting across member states, with the first certified units expected throughout 2026.
Meanwhile, Ireland’s Greenwashing Directive – transposing the EU’s Green Claims Directive – will affect how Irish companies can use carbon offset claims in their marketing. Companies claiming “carbon neutral” or “climate neutral” status will face stricter rules around the quality, additionality and transparency of the credits they rely on.
🌿 Frequently Asked Questions
🌿 What is the difference between a carbon credit and a carbon allowance?
A carbon allowance is a permit issued by a government under a compliance scheme like the EU ETS, giving the holder the right to emit one tonne of CO2. A carbon credit is generated by a project that reduces or removes emissions, verified by an independent body, and traded on the voluntary market. Allowances are created by regulation; credits are created by projects.
🌿 Can I buy carbon credits as an individual in Ireland?
Yes. Several providers offer carbon credits to individuals, including international registries like Gold Standard and Irish-based organisations like Green Sod Ireland, which ties offsets to land purchase and ecological restoration. However, reducing your own emissions first – through retrofitting your home, switching to a heat pump or using public transport – delivers more certain climate benefit than offsetting.
🌿 Is carbon trading the same as a carbon tax?
No. A carbon tax sets a fixed price on emissions – in Ireland, the carbon tax reached EUR 71 per tonne of CO2 for petrol and diesel from October 2025, with other fuels following in May 2026, heading toward EUR 100 by 2030. Carbon trading, by contrast, sets a cap on total emissions and lets the market determine the price. Both aim to make polluting more expensive, but they work through different mechanisms. Ireland uses both: the carbon tax covers fuels not in the EU ETS, while the EU ETS covers large industrial emitters and power generation.
🌿 Are carbon offsets a form of greenwashing?
Not necessarily, but they can be. A company that buys cheap, low-quality credits to claim “carbon neutrality” while making no effort to reduce its own emissions is using offsets as a fig leaf. Genuine climate strategies prioritise internal emission reductions first and use high-quality offsets only for residual emissions that cannot yet be eliminated. The EU’s Green Claims Directive, expected to be fully transposed by 2026, will require companies to substantiate environmental claims with evidence, making vague offset-based neutrality claims much harder to defend.