The voluntary carbon market has seen strong growth, and many companies are committing to reduce their emissions as part of climate change mitigation efforts. But, like other investments, it’s a matter of risk and return. Businesses that are pursuing a net-zero emission target can benefit from carbon credits, but these types of investments may not be appropriate for all investors.

There are two main ways to offset your greenhouse gas emissions: by investing in a carbon project or using credit trading, which is where a business buys carbon credit exchange from other businesses to cover their emissions. Both can be done through exchanges, which offer liquidity and standardized contracts to make the transaction faster and more efficient.

The most important question to ask is whether a particular exchange offers a wide range of tradable credits, and that it’s staffed by experts who understand both ETS trading and voluntary emissions markets. This is a good indicator that the exchange will be transparent and trustworthy.

Some exchanges also offer specific products aimed at certain types of projects, such as CBL’s Nature-based Global Emission Offset (N-GEO) or ACX’s Global Nature Token. These products guarantee that the underlying project meets a set of specifications.

A tonne of CO2 reduced, avoided or stored is worth one carbon credit, but not all credits have the same value. This means that you must carefully examine the value of credits from each type of project.

Voluntary markets give individuals, corporations and governments an option to buy or sell a certain amount of carbon credits, usually based on their quotas and limits in national or international carbon markets. They are often referred to as cap-and-trade markets.

These markets create a price for the impact of carbon dioxide and other greenhouse gases, which is often expressed in terms of dollars per metric ton. This price is regulated by government organizations and traded on exchanges, which are essentially marketplaces for the trading of emissions allowances.

It’s the same process as a commodities market, but the difference is that a carbon credit is a certificate or permit that represents a reduction in carbon emissions. As a result, it’s possible to earn a profit by arranging the sale of a carbon project or a portfolio of offset credits to a buyer.

Traders can purchase a large volume of credits from suppliers, bundle them into portfolios and then sell them to end buyers, typically with some commission. Depending on their needs, end buyers can choose to either keep the credits for their own offset needs or exchange them for a cash payment.

In addition to retail traders, a growing number of brokers also have carbon project development arms. They can help to identify potential projects that meet a specific criteria, such as exclusive claim, additional social and environmental benefits or the ability to provide a return to the buyer in the form of a dividend.