Carbon markets and offsets
On This Page (7 sections)
A carbon market puts a price on greenhouse gas emissions. In a compliance market, the law limits emissions and companies trade permits to emit. In a voluntary market, organisations buy carbon credits from projects that reduce or remove emissions elsewhere. Credits never reduce the emissions in your own inventory. You report them separately.
Compliance markets and carbon taxes
Governments use two main tools to put a price on emissions:
- Emissions trading (cap and trade). The government sets a cap on the total emissions of the covered sectors and issues allowances up to that cap. Each allowance usually permits 1 tonne of CO₂e. A company that emits less than its allowances can sell the rest. A company that emits more must buy more. The EU Emissions Trading System (EU ETS) works this way.
- Carbon tax. The government sets a price per tonne, and companies pay it on their emissions.
Both tools make high-emission activities cost more. The EU CBAM links the two: EU importers of steel, aluminium, cement, fertilisers, electricity and hydrogen buy CBAM certificates at a price based on EU ETS allowances.
In Malaysia, no compliance carbon price is in force as of November 2026. The government announced a carbon tax on iron, steel and energy, then deferred it in 2026. It launched the National Carbon Market Policy in April 2026, and a Climate Change Bill is expected to set the legal basis for carbon pricing. Climate reporting rules in Malaysia and worldwide has the details.
The voluntary carbon market
In the voluntary market, a project such as a forest protection scheme, a methane capture plant or a renewable energy plant earns carbon credits. Each credit represents 1 tonne of CO₂e that the project reduced or removed. An independent body verifies the project, and a registry such as Verra issues and tracks the credits. When a buyer uses a credit for a claim, the registry retires it so that nobody can use it again.
Bursa Carbon Exchange (BCX) is Malaysia's voluntary carbon market. Bursa Malaysia launched it on 9 December 2022 as the world's first Shariah-compliant carbon exchange. Its first auction, on 16 March 2023, sold 150,000 Verra-registered credits to 15 buyers. BCX now also trades renewable energy certificates (RECs).
Reductions, avoidance and removals
Credits come from different kinds of projects, and buyers value them differently:
| Type | What the project does | Example |
|---|---|---|
| Avoidance or reduction | Stops emissions that would otherwise happen | Capturing methane at a landfill, replacing diesel generators with solar |
| Removal | Takes CO₂ out of the atmosphere and stores it | Planting trees, biochar, direct air capture with geological storage |
IFRS S2 asks companies with a net emissions target to say which type of credits they plan to use. What is the difference between avoided and negative emissions? explains the difference in more detail.
What makes a good credit
The Integrity Council for the Voluntary Carbon Market (ICVCM) publishes the Core Carbon Principles, a global benchmark for high-integrity credits. Four of the principles are about the climate effect itself:
- Additionality. The reduction would not have happened without the money from the credits.
- Permanence. The reduction or removal lasts. If there is a risk of reversal, for example a forest fire, the project has measures to compensate for it.
- Accurate measurement. The project measures its effect with conservative, science-based methods. The measurement includes emissions that the project only moves somewhere else, which is called leakage.
- No double counting. Each tonne is counted once. One credit is not issued twice, used twice, or claimed by two parties.
Before you buy, ask which standard certified the project, whether the ICVCM has approved the credit category, and how the seller handles reversals.
Credits and your GHG inventory
The GHG Protocol and IFRS S2 both keep credits out of the inventory:
- Report your gross Scope 1, Scope 2 and Scope 3 emissions. Do not subtract credits.
- Report credits separately, with their type and the scheme that certified them.
- If you have a net emissions target, IFRS S2 also requires the matching gross target. You must explain how much the net target relies on credits, which scheme verifies them, and whether they come from reductions or removals.
As a result, your inventory only goes down when your own emissions go down. Credits can support a climate strategy, but they do not replace cutting the emissions that you control.
Further reading
For the policy context in Malaysia, read our blog post Malaysia's green economy in 2025.
Sources
- European Commission: Carbon Border Adjustment Mechanism
- Bursa Carbon Exchange: About BCX
- Bursa Carbon Exchange: Inaugural auction media release (17 March 2023)
- ICVCM: The Core Carbon Principles
- ICVCM: Definitions
- European Commission: About the EU ETS
- GHG Protocol Corporate Standard
- IFRS S2 Climate-related Disclosures
- Malaysia's responses to UNFCCC questions, 2026 (carbon tax deferral)
- The Star: Carbon tax plan put on hold (21 April 2026)
