Carbon credit regulation · UK

Is carbon credit trading regulated in the UK?

Carbon credit regulation in the UK turns on one distinction: a voluntary credit bought outright sits outside the investment perimeter, and a derivative written over one may not.

UK ETS allowances are a third thing again, on a separate and narrower hook in the Regulated Activities Order.

This page sets out all three, and what the UK Emissions Trading Scheme itself requires.

The spot credit →The UK ETS

Checked against 17 sources fromlegislation.gov.ukFinancial Conduct AuthorityDepartment for Energy Security and Net ZeroUK ETS AuthorityGOV.UKHM Revenue & CustomsSee the sources

RAO Part III · the spot credit

What the Order says about a spot credit

An article-by-article read of Part III of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, articles 74 to 89, finds no category naming a voluntary carbon credit held or traded outright.

A spot credit is not a security under article 76, not a debt instrument under article 77, and not an emission allowance under article 82A or article 82B.

Article 82B is limited, by the Order’s own definitions, to allowances created under article 18 of the UK ETS Order.

Article 89, the catch-all for “rights to or interests in investments”, reaches only what is specified by another provision of Part III, so it cannot pull in a credit that nothing else names.

The FCA's own position agrees — with a gap

The FCA’s consumer guidance says that “carbon credits are not currently regulated by the FCA.”

It cites no provision of the Order, and draws no line between a spot credit and a derivative, or between a voluntary credit and a UK ETS allowance.

It is corroboration, not the rule.

Source: SI 2001/544, Part III, read article by article. Our summary.
Article	Covers	Reaches a spot voluntary credit?
76	Shares and securities	No
77	Debt instruments	No
82A	Emission allowances — auctioned and two-day spot	No
82B	UK ETS allowances created under art 18 of SI 2020/1265	No
89	Rights to or interests in investments	Only what another article specifies

Where the perimeter changes

Derivatives over a credit are a different question

A future or a contract for difference written over a carbon credit must not be blurred with the credit itself.

Article 84 defines a future’s underlying as “a commodity or property of any other description”, and article 85 a CFD’s as “the value or price of property of any description”.

Both are broad enough to reach a carbon credit.

A future is excluded only where it is made “for commercial and not investment purposes” under article 84(2) to (7), a test that turns on contract structure and trading mechanics, not on what the buyer means to do with the credit afterwards.

A CFD is excluded only where actual delivery of the credit is intended, under article 85(2)(a).

Options over a credit under article 83 are narrower again, caught only through the Schedule 2 venue-trading or clearing gate.

This is a reading of the Order, not legal advice, and anyone structuring a credit-linked contract needs their own counsel.

The sentence that must never stand alone

“Voluntary carbon credits are not specified investments”, written flat, silently drops the derivatives limb.

A reader structuring a forward or a price swap would be told the opposite of what the Order implies for that structure.

The safe version keeps both halves together: a spot credit is not a specified investment; a future or CFD written over one may be.

UK ETS allowances

Allowances sit on a separate, narrower hook

UK ETS allowances are specified investments under article 82B, but only when provided by a specified type of firm under article 82B(2).

The FCA Handbook at PERG 2.6.19D confirms the same scope.

Neither article 82B nor PERG mentions voluntary credits at all.

Reasoning from “the UK ETS is regulated” to any conclusion about the voluntary market borrows an authority the statute does not give: the two sit on entirely separate hooks.

The same distinction matters in a sustainability report, where an allowance surrendered under the UK ETS is not a carbon credit used against a net target — see carbon credits in sustainability reporting.

The UK Emissions Trading Scheme

What the UK ETS requires, and of whom

The UK ETS is a cap-and-trade scheme established by the Greenhouse Gas Emissions Trading Scheme Order 2020.

The UK ETS Authority’s policy overview says it covers heavy industry, power, aviation and domestic maritime, “approximately 25% of UK territorial emissions”.

Combustion is covered on a site where units with a total rated thermal input “exceeding 20 megawatts” are operated, under Schedule 2 of the Order.

Operators submit a verified emissions report by 31 March and surrender allowances by 30 April following each scheme year, as Participating in the UK ETS sets out.

SI 2026/392 brought ships of 5,000 gross tonnage and above into the scheme from 1 July 2026, covering carbon dioxide, methane and nitrous oxide, with offshore vessels following from 1 January 2027.

SI 2026/214 set the auction reserve price at £28 from 8 April 2026, rising each 1 January from 2027 in line with the GDP deflator.

Waste incineration was due to join in 2028, and the government’s update of 26 August 2026 says it will not; a new timeline is to be set out.

Linking with the EU ETS is not done: the UK–EU Common Understanding of 19 May 2025 commits both sides only to “work towards” a link, and no agreement or date exists.

The UK’s own carbon border mechanism commences on 1 January 2027 for aluminium, cement, fertiliser, hydrogen, and iron and steel, according to HMRC’s policy summary.

Recent and coming changes

8 Apr 2026
Auction reserve price £28
Up from £22; indexed to the GDP deflator each 1 January from 2027.
1 Jul 2026
Maritime joins
Ships of 5,000 gross tonnage and above; CO₂, methane and nitrous oxide.
26 Aug 2026
Waste delayed
Waste incineration will not join in 2028; a new timeline is to follow.
1 Jan 2027
Offshore vessels; UK CBAM
Offshore vessels enter the scheme, and the UK carbon border adjustment mechanism commences.
2031–2040
Phase II
Announced December 2025, with banking between phases.

Sources: SI 2026/214; SI 2026/392; GOV.UK waste update; HMRC CBAM policy summary; UK ETS policy overview.

Still an open policy question

The voluntary market: consulted on, not legislated

The Department for Energy Security and Net Zero consulted on Voluntary carbon and nature markets: raising integrity from 17 April to 10 July 2025, and received about 200 responses.

A summary of responses was published on 26 March 2026, in advance of a formal government response that the department said would follow in summer 2026.

As at 30 September 2026 no formal response had been published, so the legal treatment of a voluntary credit remains an open policy question rather than settled law.

The government’s six integrity principles of 15 November 2024 are guidance: their operative verbs are “should” and “are encouraged to”.

Carbon credit rating agencies face a separate, future perimeter: the ESG Ratings Order 2025 requires authorisation for certain ESG ratings from 29 June 2028, and whether it reaches ratings of carbon credits is unsettled — see carbon credit ratings.

Describing a credit

Claims are governed by consumer law

None of the investment perimeter touches how a credit may be described once bought.

That is governed by the Digital Markets, Competition and Consumers Act 2024, which has prohibited unfair commercial practices and misleading actions and omissions since 6 April 2025.

Its Schedule 20 blacklist — practices banned outright, regardless of effect — names nothing about carbon, climate or offsetting, so no offset-based claim is banned outright in the UK.

A misleading one can attract a CMA penalty of up to £300,000 or, if higher, 10% of turnover under section 182(6).

How that plays out against a company’s UK SRS disclosures is set out in carbon credits in sustainability reporting, and the standards behind a carbon neutral claim in carbon neutral certification.

The FCA’s role in sustainability reporting runs wider than carbon credits: its statutory authority and consultation timeline for UK SRS are covered in the FCA’s UK SRS framework on uksrs.org.uk.

SRS Credit itself is an independent reference: it is not authorised or regulated by the Financial Conduct Authority, and nothing here is legal or investment advice.

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