Voluntary versus compliance carbon markets, in plain terms

21 September 2026

The difference between voluntary and compliance carbon markets is simple: one is optional, the other is legally required. In a compliance market, a government or regulator forces certain companies to buy and surrender carbon credits to meet an emissions cap. In a voluntary market, anyone - a company, an individual, an institution - buys credits by choice, often to make a claim about their own emissions footprint. The two markets operate under different rules, use different types of credits, and serve different purposes. Understanding which market a tokenised carbon credit comes from is essential for judging what the token actually represents.

Compliance markets: the legal framework

Compliance carbon markets are created by law. The most well-known example is the European Union Emissions Trading System (EU ETS), but similar systems exist in California, South Korea, New Zealand, and several other regions. In these systems, a regulator sets a cap on total emissions from covered sectors - typically power generation, heavy industry, and aviation - and issues a fixed number of allowances (often called "emission allowances" or "permits") equal to that cap. Companies must surrender enough allowances each year to cover their actual emissions. If they exceed their allowances, they pay a penalty.

In a compliance market, carbon credits are usually not the primary instrument. The main traded unit is the allowance, which is a permit to emit one tonne of CO₂. However, many compliance systems also allow the use of offsets - carbon credits generated by projects outside the capped sectors - to meet a portion of the compliance obligation. These offsets must meet strict criteria set by the regulator, and their use is limited. For example, the EU ETS only accepts offsets from projects within the EU, and only up to a small percentage of a company's obligation.

Compliance credits are typically not tokenised on a public blockchain. They are tracked in central registries operated by the regulator or an authorised body. The price of a compliance credit is driven by supply and demand within the cap, and it can be volatile. In 2023, EU ETS allowances traded between roughly €50 and €100 per tonne. That price is a direct consequence of the cap being tightened over time.

Voluntary markets: the optional choice

Voluntary carbon markets exist outside any legal requirement. A company or individual buys a carbon credit to offset emissions that they have not reduced themselves. The credit is usually generated by a project that reduces, avoids, or removes emissions - such as a reforestation initiative, a methane capture project at a landfill, or a renewable energy installation in a country without a grid.

Voluntary credits are verified by independent standards such as Verra's Verified Carbon Standard (VCS) or the Gold Standard. Each credit is assigned a unique serial number and recorded in a registry. When the credit is retired - meaning it is permanently taken out of circulation - the registry updates its status. This is the point at which the credit can be used to support a claim.

Tokenised carbon credits almost always come from the voluntary market. A project developer or intermediary takes a voluntary credit from a registry, tokenises it on a blockchain, and sells it on an exchange or directly to buyers. The token represents the right to claim the environmental benefit of the underlying credit, provided the token is retired in a way that is linked to the registry's retirement.

Key differences that affect tokenised credits

• Legal backing: A compliance credit is backed by law. If a company fails to surrender enough allowances, it faces a penalty. A voluntary credit has no such legal force. Its value depends entirely on the integrity of the project and the buyer's willingness to pay.

• Price signal: Compliance market prices reflect the cost of compliance. They are set by the cap and the market's expectation of future stringency. Voluntary market prices are set by project costs, buyer demand, and perceptions of quality. A tokenised voluntary credit can trade at a wide range of prices, from a few cents to tens of dollars, depending on the project type and vintage.

• Registry control: Compliance registries are tightly controlled by regulators. Voluntary registries are run by non-profit standards bodies. When a voluntary credit is tokenised, the registry must approve the process - otherwise the token is not linked to a real credit. Some registries, like Verra and Gold Standard, have explicit policies for tokenisation.

• Double counting risk: In compliance markets, double counting is prevented by the central registry and the legal obligation to surrender. In voluntary markets, double counting is a known problem. A tokenised credit that is not properly retired in the registry can be sold twice - once on-chain and once off-chain. Registries have tightened rules to prevent this, but it remains a risk.

How to tell which market a tokenised credit belongs to

Look at the credit's origin. If the token is backed by a credit from a voluntary registry like Verra or Gold Standard, it is a voluntary market credit. If it is backed by an allowance from a compliance system like the EU ETS, it is a compliance credit - though such tokenisation is extremely rare. Most tokenised carbon credits are voluntary.

Check whether the credit has been retired in the registry. A token that represents a retired credit is a claim that the environmental benefit has already been used. A token that represents an unretired credit is a claim that the benefit is still available. The registry record should show the retirement status clearly.

Verify that the token issuer is authorised by the registry. Some registries maintain lists of approved tokenisation partners. If the issuer is not on that list, the token may not be backed by a real credit at all.

Why the distinction matters for a claim

If a company buys a compliance credit and retires it, the claim is that it has met a legal obligation. That is not the same as saying it has voluntarily offset its emissions. If a company buys a voluntary credit, the claim is that it has chosen to offset beyond any legal requirement. The two claims are different in kind, and a buyer should be clear about which one they are making.

In practice, most consumer-facing claims about carbon offsets are based on voluntary credits. The distinction between voluntary and compliance markets is rarely mentioned in marketing. That is a problem. A tokenised carbon credit from a voluntary market can be a legitimate tool, but its value depends entirely on the integrity of the project and the registry. A compliance credit, by contrast, carries the weight of law. Knowing which one you are buying is the first step in evaluating whether the claim is real.

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