Columbia Energy Exchange: A Tonne of Carbon Has to Become a Unit Before There Can Be a Market

Contents

1. What the episode covers
2. Getting the names straight
3. Three sides of regulation, and the market stalls without any one of them
4. Treat it as the New York stock market before 1934
5. ”High integrity” is a six-column checklist
6. One company at 90% — is that a market?
7. Every country builds its own first, then tries to connect them
8. A company says it is net zero. Why should I believe it?
9. One customer carrying 90% of revenue — how would you read that?
10. The news says policy is retreating. Is the sector finished?
11. Worth a look
12. The one thing to take with you

He opened the field boundaries and levelled the land tax; he standardised the measures of volume, the weights and the measures of length.

—— Sima Qian, “Records of the Grand Historian: Biography of Lord Shang” (Western Han; my own translation)

In the 6 October 2026 episode of Columbia Energy Exchange, host Bill Loveless talks with Gautam Jain, senior research scholar at Columbia University’s Center on Global Energy Policy, and Ned Shell, director of public policy and climate finance programs at Bloomberg, about project-based carbon credit markets — credits generated by discrete, identifiable projects. Two numbers show the shape of the market today: Gautam estimates Microsoft alone took about 90% of carbon removal offtake last year, roughly 45 million tonnes, while the share of retired credits surrendered into compliance markets went from under 10% two years ago to 20–25% last year. Both expect the market to be larger in five years, conditional on supply-side, demand-side and market-side regulation arriving together — Gautam’s research surveys regulation across the G20 (the US was pulled into a separate study), and Ned expects the next year or two to get messier first.

What the episode covers

Loveless opens with how contested the subject is. Supporters call carbon credits the only bridge between a company’s climate pledge and what it can deliver on its own; critics call them a shell game that lets polluters buy their way out of acting. He says the argument is wider than whether credits work — it reaches the integrity of the markets built to trade them.

The two guests come at it from different sides. Gautam Jain works on the role of financial and carbon markets in the transition to net zero, with a focus on emerging economies; before academia he covered emerging markets as a portfolio manager and strategist at asset managers and investment banks. Ned Shell is at Bloomberg, and before that served as counsel to the under secretary for domestic finance at the US Treasury, with earlier stints at Bain and the World Bank. The research is supported by Bloomberg Philanthropies.

Gautam starts with the unit. One carbon credit represents one metric tonne of carbon dioxide equivalent removed, reduced or avoided relative to a baseline. When credits come from discrete, identifiable projects, you have a project-based carbon credit market. The underlying projects are often nature-based and sited in emerging economies — afforestation, forest conservation, methane capture. The buyers tend to be hard-to-abate sectors and hyperscalers domiciled in developed countries, using credits against residual emissions they cannot eliminate. So the same channel moves capital from developed to emerging economies, and some projects carry co-benefits in land, forest, water and biodiversity.

Getting the names straight

Ned says “voluntary carbon market” is a badly chosen name. The word voluntary describes how a credit is used; the credit itself carries no voluntary or compliance attribute. A company buying a credit of its own accord — that use is the voluntary part. He draws a Venn diagram: project-based carbon credit markets are the big circle, voluntary carbon markets a smaller circle nested inside.

Allowances are a different animal. Under an emissions trading system a regulator allocates or auctions allowances to regulated entities, and one allowance is permission to emit one tonne. Credits come from individual mitigation projects. Both finance decarbonisation by different routes.

Three sides of regulation, and the market stalls without any one of them

Ned’s taxonomy is the spine of the research: supply-side rules govern the quality threshold and verification of credit generation, demand-side rules govern how buyers use and disclose credits, market-side rules govern regulated exchanges and trading platforms. Gautam says supply-side rules are further along in most countries while demand-side rules lag everywhere — and the demand-side gap is exactly where a company’s net zero story goes unpoliced.

Market-side gets the least attention. Ned says any market in tradable assets rests on a layer of nitty-gritty plumbing, and on carbon credits Bloomberg supports the Common Carbon Credit Data Model, initiated last year at the G20’s request, with Indonesia piloting it now. His framing is concrete: if a credit out of Indonesia carries different attributes, is described differently, or has its impact written up differently from a credit out of South Africa, nothing trades.

Treat it as the New York stock market before 1934

Gautam answers “how does this market grow” with two pieces of financial history. Before the Securities Exchange Act of 1934, the US stock market was self-regulated. The New York Stock Exchange operated like a private club, setting its own standards and policing its own members, and devolved into insider trading, market manipulation and outright fraud, culminating in the 1929 crash. Commodities ran the same course: the Chicago Board of Trade wrote its own trading practices and forward contract specifications from the 1850s, and federal oversight waited for the Grain Futures Act of 1922 and the Commodity Exchange Act of 1936.

He pulls out two lessons. First, scale needs enforceable safeguards to build market trust. Second, and this is the one I found more usable: regulation does not start from a blank page. Market practice is already there, so codify the common practice and put a regulatory body on top to enforce it.

”High integrity” is a six-column checklist

Gautam breaks a high integrity credit — the term asks whether that tonne was really abated — into six conditions: real, quantifiable, independently verifiable, additional, permanent, and unique. The first three decide whether an outsider can check the thing at all. Additional means the project would not exist without the money raised through the credit.

The last two are the hard ones. Permanence has to deal with carbon dioxide staying in the atmosphere for thousands of years: how do you guarantee captured carbon stays put, for 30 years or 100? With nature-based projects, what happens on wildfire, insect infestation, or someone logging the forest, and what does the reversal mechanism look like? Unique means no double counting — once the host country sells credits to a company or government abroad, both countries cannot each count them toward their nationally determined contributions. Ned’s addition is the most candid line in the episode: one reason these markets have not scaled is that serious questions about credit quality remain open, and left alone you get fraud and overestimation, with plenty of past news stories to show it. What regulation can add is clear consequences for bad actors and trusted machinery for verifying reductions and removals.

One company at 90% — is that a market?

Microsoft is the largest buyer of carbon removal credits. In April, reports said it had paused signing new removal contracts while it reassessed procurement; Microsoft neither confirmed nor denied them, and has since closed at least one deal for 650,000 credits. Gautam estimates Microsoft took roughly 90% of removal offtake last year, about 45 million tonnes, and notes its emissions rose 25% in 2025 against 2024 on the data centre build-out. Google has described its 2030 net zero target as more complex and challenging than ever while reaffirming it — his inference is that hitting those targets means buying more credits.

Ned is blunter. This has happened before: a tech company gets asked whether it will keep buying and the whole credit market has a wobble. If one company holds 90% of purchase share, he asks, is this a real market? He cannot think of many markets shaped like that. The fix is more buyers, and more buyers means they first have to trust what they are buying.

Then Gautam does the arithmetic. The EU will issue 250 million extra allowances over ten years and use the auction proceeds to buy carbon removal credits, averaging about 25 million tonnes a year; regulated entities still cannot use credits against their own emissions, and he says the channel differs from a straight offset while the end result is the same. On that math the EU covers somewhat more than half of Microsoft’s volume in a year, and he flags that the actual purchase volume will differ because what the EU issues is allowances. Meanwhile compliance markets are picking up the slack: of credits retired two years ago, under 10% were surrendered into compliance markets; last year it was 20–25%.

Every country builds its own first, then tries to connect them

Ned says Article 6 of the Paris Agreement is making real progress, but what countries are adding now is sovereign-level policy and regulation — their own registries, their own supply-side standards, their own issuance guidance. They are not leaving all of it to a UN system because each country wants something different out of these markets, and that layer is how they get it. He expects more chaos over the next year or two as each works out the domestic regime that suits it, then has to make it interoperable with other countries and with the UN system, and then converge.

Two working templates already exist. CORSIA, for international aviation, sets airlines a threshold — hold emissions at 85% of the 2019 level and offset the excess with credits — and is specific about which credits qualify, with the result that CORSIA-eligible credits trade at a premium. On Article 6, clause 6.2 covers bilateral trades, with more than a hundred bilateral agreements signed, while 6.4 is meant to be a global carbon market whose methodologies are still being written, expected to be fully operational within a year or so.

A company says it is net zero. Why should I believe it?

This is where I get stuck reading ESG disclosure: a company writes that it is net zero and I cannot tell which sentence anyone verified. The episode offers a way in. Gautam says regulation can lay out a mitigation hierarchy — cut your own scope 1, 2 and 3 emissions as far as is economically possible, past which abatement gets prohibitively expensive, and only above that threshold do credits come in. With the hierarchy, a company knows which rung permits buying. Without it, how much it buys is whatever it says.

Ned supplies the other half: companies get criticised for leaning on credits while leaving reductions they could make in their own operations. So when I read a net zero claim I look for three things — what it reduced (its own operations), what it offset (how many credits), and who verified (which independent body, under which methodology). Missing any one of the three and the claim is a sentence. The habit transfers to reading financials: a pretty number with nobody accountable for checking it carries less weight.

One customer carrying 90% of revenue — how would you read that?

If someone showed you a stock and said 90% of last year’s revenue came from a single customer, most people would take a step back. The supply side of carbon removal is shaped that way, and the reports of Microsoft pausing gave the whole market a wobble — that wobble is the price of customer concentration.

What I took from this section is to ask the concentration question more finely. Beyond “how many customers”, ask who replaces this one if it leaves, and how fast. On carbon the answer is visibly growing: the EU’s 25 million tonnes, CORSIA, Article 6 — three new demand sources on the way, and Gautam’s end state is demand diversified enough that one or two buyers stepping back no longer sets the price. Back in stock picking it is the same question: for a supplier that lost a large customer, watch whether its customer list is lengthening, because what it says about the loss tells you little.

The news says policy is retreating. Is the sector finished?

Loveless asks it directly: US policy is now moving the other way, so how much risk does that pose to players here? Ned frames it as a missed opportunity and says the tailwinds behind these markets are strong enough that they do not need US policy at this moment, and he would not call it an existential risk; state-level compliance markets are still innovating (California permits credits toward obligations) and the non-governmental sector is active. Gautam adds a different cost: global standards are being set now, regulation has to harmonise across jurisdictions for the market to work, and by sitting out this round the US gives up a seat at the table where the rules get written.

What I take from that is to price two risks separately. One is whether the thing disappears. The other is who ends up writing the rules. Headlines usually handle only the first, while the long-run gains and losses often sit in the second. For any sector being pushed around by policy, I start with who is funding the demand — if demand comes from other countries and other regimes, a domestic turn changes who gets the business, and the sector is still there.

Worth a look

• Columbia Energy Exchange, episode of 6 October 2026, the source for these notes (energypolicy.columbia.edu)
• The Center on Global Energy Policy research on regulation of project-based carbon credit markets across the G20, supported by Bloomberg Philanthropies
• Article 6 of the Paris Agreement, clauses 6.2 (bilateral trades) and 6.4 (global carbon market), and their progress (unfccc.int)
• ICAO’s CORSIA rules and the list of eligible credits (icao.int)
• The EU’s Carbon Removals and Carbon Farming regulation (CRCF), and the European Commission announcement folding removal credits into the emissions trading system

The one thing to take with you

What a sum of money is worth depends on whether the thing would have happened anyway without it.

This is the column most easily skipped on the six-part checklist, and the line I most want to keep from the episode. It is hard because it asks you to imagine a world that did not happen: without this money, would that forest have been cut at all? A project that would have gone ahead regardless bought a piece of paper with the money.

Here’s a version I’ve tried that works far away from investing. This week pick three sums you spent or three stretches of time you gave — a tutoring fee, a subscription, that weekend drive — and ask one question of each: if I had not spent it, would this have happened anyway? For the one where the answer is yes, skip it once this month and see what goes missing.

Raw Markdown

This article is an educational discussion of investment method. It is not advice to buy or sell any individual security, offers no target prices, and does not analyze any current holding. Investing carries risk; make your own decisions or consult a qualified professional.