Find out how carbon credit trading works, why we think you should avoid investing in carbon credits and related markets, and how to protect yourself from what is most likely a scam.
A carbon credit is a certificate or permit which represents the right to emit one tonne of carbon dioxide (CO2) and they can be traded for money.
However, many investors have told us they are not able to sell or trade the carbon credits they have bought. None of these investors reported making a profit.
This supports our view that there is not a viable secondary market for ordinary investors to sell or trade carbon credits, despite claims and promises made by many firms, advisers and brokers promoting and selling them as an investment.
We have also received reports that an increasing number of firms are using dubious, high-pressure sales tactics to sell carbon credits to investors.
How carbon credit trading works
Investors are usually called out of the blue by salespeople promoting carbon credits, but contact can also come by email, post, word of mouth or at a seminar or exhibition.
You may be offered carbon credit certificates, voluntary emission reductions (VERs), certified emission reductions (CERs) or an opportunity to invest directly in a ’green‘ scheme or project that generates carbon credits as a return on investment.
Carbon credits and VERs certificates are often labelled as ’certified‘, but this certification is voluntary and involves a wide range of bodies and different quality standards that are not recognised by any UK compensation scheme.
The caller may claim carbon credits are ‘the new big thing’ in commodity trading, industries now have to off-set their emissions, the government is focusing on green developments or that it is a growing market.
But we have seen that investors are not making any money as they cannot sell or trade their carbon credits.
Remember: if it sounds too good to be true, it probably is!
Trading on carbon credit markets requires skill and experience, and we strongly advise you to get independent professional advice before handing over any money.
If you are considering buying carbon credits or investing in a related scheme make sure you fully understand how the sector works and the risks involved.
Also keep in mind that the projects generating carbon credits are usually based overseas and authorities in the UK have no way of controlling the quality or validity of the schemes.
We do not regulate carbon credits as a product in the same way as shares or units. This means a firm promoting or selling them does not necessarily have to be authorised by us.
But if you buy an investment product from a firm that is not authorised by us, you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.
We are aware that some firms authorised by us are involved in the sale of carbon credits. They may act as a ‘custodian’ or ‘nominee’, opening an account with a carbon credit registry to hold the credits on behalf of investors. The salesperson may also claim the credits are provided by a ‘supplier’ authorised by us.
However, even if a firm involved in the sale or trading of carbon credits is authorised by us, as we do not regulate carbon credits you will not have access to the ombudsman service or FSCS. This includes where you cannot sell or trade carbon credits.
We might also be interested in carbon credits where they are sold as a collective investment scheme (CIS) or a futures contract. For this reason, please tell us about the sales process if you are offered or buy carbon credits or a similar investment.
If you have already bought or invested in carbon credits, be especially careful as fraudsters are likely to target you again. The follow-up contact may be completely separate or related to your previous investment, such as an offer to get your money back, transfer your investment or buy back the carbon credits after you pay an administration fee.
You can find out more about reporting a scam.