Carbon Markets

Carnegie Sterns International Law: Leading the Future of Carbon Market Regulation

Governments across the globe have committed to curbing global warming and achieving net-zero carbon emissions by 2050—or sooner—in line with the goals of the Paris Agreement. Carbon markets play a critical role in meeting these commitments by providing mechanisms for governments, industries, and organizations to manage emissions reductions more efficiently and cost-effectively.

As regulation intensifies, Carnegie Sterns International Law has emerged as the global leader in advising on the legal, regulatory, and compliance frameworks shaping carbon markets worldwide. Our attorneys are at the forefront of this evolving landscape, guiding clients through national and international developments with unmatched legal insight and technical fluency.

Evolving Regulatory Landscape

What began as a relatively “light-touch” regulatory approach to carbon markets is rapidly transforming into a highly scrutinized and structured regime. Policymakers and regulators are increasingly focused on enhancing transparency, strengthening market integrity, and aligning disclosures with climate-related financial risk.

As financial regulation intersects more deeply with environmental policy, oversight of carbon emissions trading, disclosure obligations, and sustainability claims is intensifying. Over the short to medium term, carbon markets—both mandatory and voluntary—are expected to come under stricter regulation. These changes aim to harmonize standards, ensure reliable reporting, and meet growing stakeholder demands for credible and comparable sustainability information.

Mandatory vs. Voluntary Carbon Markets

Carbon markets currently fall into two categories:

Mandatory (Compliance) Markets, such as cap-and-trade or Emissions Trading Schemes (ETS), operate under government regulation. These systems place a limit (or cap) on total allowable emissions and allocate permits to regulated entities, which can then trade those permits based on actual emissions performance. Examples include:

• EU ETS – The world’s largest carbon market, covering over a third of the EU’s greenhouse gas emissions.

• UK ETS – Operational since January 2021, following the UK’s exit from the EU ETS.

• Other ETS Programs – Including schemes in Australia, Brazil, China, and at the state level in the U.S.

Voluntary Markets, on the other hand, are driven by companies and institutions seeking to proactively manage their carbon footprint beyond legal requirements. These markets involve the trading of carbon credits—representing verified emissions reductions or removals (typically one tonne of CO₂e)—to offset emissions from business operations. While voluntary credits cannot satisfy regulatory obligations, they support broader climate goals and reputational strategies.

Shaping Market Participation Through Disclosure

New disclosure regimes are influencing how companies engage with carbon markets. Regulatory frameworks increasingly require corporations to disclose net-zero transition strategies and climate risk exposure.

• In the UK, listed companies and financial institutions must begin reporting on net-zero transition plans starting in 2023.

• The EU is implementing the Corporate Sustainability Reporting Directive (CSRD), which will expand climate reporting obligations to nearly 50,000 companies from 2024 onward.

• Globally, the International Sustainability Standards Board (ISSB) is working toward a unified framework for climate disclosures, including carbon offsets and transition plans.

• In the U.S., the SEC’s climate-risk disclosure proposals require enhanced reporting on carbon-related activities and offset strategies.

Carnegie Sterns advises clients on aligning with these frameworks while developing sustainable, defensible climate transition strategies.

Integrity and Strategic Use of Carbon Credits

While carbon markets are valuable tools, their credibility relies on correct application. Leading frameworks—including the Science Based Targets initiative (SBTi)—emphasize that voluntary carbon credits should not substitute for science-based reductions. Instead, they are best used to neutralize residual emissions or fund mitigation projects beyond a company’s operational boundaries.

We advise organizations on when and how carbon credits should be integrated into decarbonization strategies and provide rigorous legal review to avoid misuse, greenwashing, or misalignment with stated sustainability targets.

Fragmented Regulation and Market Standardization

The global carbon market landscape remains highly fragmented. Various jurisdictions and voluntary standard-setters continue to adopt different methodologies, leading to discrepancies in pricing, reporting, and compliance.

Emerging frameworks such as the Core Carbon Principles (CCPs) by the Integrity Council for the Voluntary Carbon Market aim to bring consistency and transparency to voluntary credit systems. Meanwhile, formal regulatory regimes such as the UK ETS, EU Fit for 55 package, and Carbon Border Adjustment Mechanisms (CBAMs) are driving convergence in policy and pricing.

Carnegie Sterns plays a central role in helping clients interpret and respond to this patchwork of regulation. Our international regulatory team—consistently recognized as a thought leader in climate law—has advised on national carbon pricing strategies, cross-border emissions regulation, and treaty compliance under global climate frameworks.