The New Geography of Carbon Markets: Opportunity or Uncharted Legal Risk for APAC Investors?

What you need to know

• International carbon markets are live under the Paris Agreement, but the rules were only finalised at COP29 in late 2024 and the legal infrastructure is still being tested.
• Three overlapping markets (Article 6, national compliance schemes, voluntary markets) are not fully interoperable, creating risk around double counting, conflicting rules and credit characterisation.
• Care needs to be taken in any public statements about what offsets achieve - third-party certification or registry listing does not necessarily shield you from litigation.
• Forward-looking net-zero claims are defensible where a company can demonstrate a reasonable basis, potentially including systems and expert input, but may be vulnerable where that evidence is lacking.

What you need to do

• Start small and structured: tie an initial pilot purchase to a specific objective (e.g. one facility) and use it to build internal capability to assess credit quality, and stress-test your public communications before scaling.
• Assign clear ownership over credit purchases and public claims, with regular Board reporting on offset exposure, credit quality metrics and any changes to the regulatory or litigation landscape.
• Document the evidentiary basis for any net-zero or carbon-neutral statement at the time it is made, including the specific analysis, expert advice and internal approvals, so that a ‘reasonable basis’ can be demonstrated if challenged. Be precise about what credits achieve: disclose that offsets represent a compensatory mechanism, not an elimination of underlying emissions, and avoid language that conflates the two.
• Build a scheduled review cycle into governance to reassess credit quality, monitor regulatory developments including carbon border adjustment mechanisms and mandatory climate reporting obligations, and confirm that existing public claims remain supportable.

What you need to know

Five years after Article 6 of the Paris Agreement established a framework for international carbon trading, carbon markets are entering a new phase and 2026 is shaping up as a pivotal year, and not only because of what is being traded. Carbon credits are no longer simply a sustainability instrument, they are increasingly becoming a strategic commercial asset sitting at the intersection of international trade, industrial policy, corporate governance and mandatory climate disclosure.

COP29 in Baku (November 2024) provided the legal architecture and finalised the Article 6.4 crediting mechanism standards and provided long-awaited guidance on Article 6.2 cooperative approaches, ending years of stalled negotiations.

But the operational and commercial reality has moved faster than the legal framework. The carbon pricing landscape is now divided and governments are reshaping carbon pricing through domestic policy: the EU is accelerating its Carbon Border Adjustment Mechanism (CBAM) into a definitive certificate-purchase regime from 2026, covering iron and steel, cement, fertilisers, aluminium, hydrogen and electricity; Singapore has legislated a carbon tax trajectory reaching S$45/tCO2e in 2026-2027 (targeted at S$50-80 by 2030); and the US has withdrawn from the United Nations Framework Convention on Climate Change (UNFCCC). Across Asia, fragmented domestic carbon pricing is introducing divergence into the international climate regime, creating risks around property characterisation, conflict of laws, double counting and disclosure rules that companies working with carbon credits need to understand and manage. APAC businesses are increasingly operating across overlapping domestic, international and voluntary carbon regimes.

In the context of this increasing disjunct between operational practice and applicable legal frameworks, it is important to consider where the highest legal risks arise for APAC-based organisations purchasing, investing in and relying on carbon credits, and what practical steps in-house counsel, risk and sustainability teams should take when integrating carbon credits into broader commercial and climate strategies.

Type of carbon markets

Carbon markets are systems that allow one party to pay for an emissions reduction achieved by another and count that reduction toward its own target.

The carbon ecosystem consists of three interacting markets. They are not a single market, but rather an ecosystem of overlapping regimes with different rules, different participants and different risk profiles.

• Article 6 of the Paris Agreement which establishes the international framework for how countries cooperate and trade emissions reductions between each other. This market represents the biggest potential demand pool over the medium-to-long term, but is currently less mature, as current volumes remain modest relative to its projected scale.
• National compliance schemes which involve individual countries building their own mandatory pricing regimes at different speeds. The EU’s Carbon Border Adjustment Mechanism is accelerating these national markets, pushing APAC nations to price carbon domestically so revenue stays onshore rather than being captured at the EU border. These national schemes offer durable, mandated demand, but access to them varies sharply by jurisdiction.
• Voluntary carbon markets which allow corporates to purchase credits beyond regulatory requirements. A credit's classification as "compliance" or "voluntary" depends on its use, not where it originates. As most credits globally are still used voluntarily, these markets offer the most immediately accessible and liquid entry point, but the opportunity is now on ensuring that carbon credits are properly and adequately calculated, documented and backed up by relevant projects or actions.

These markets should not be viewed as competing alternatives. Instead, they are becoming increasingly interconnected. Decisions made in one market, for example, the EU's CBAM or the development of Article 6 methodologies, are influencing pricing, liquidity and demand across voluntary and domestic compliance markets. As a result, companies purchasing carbon credits can no longer assess legal risk by reference to a single market in isolation.

Why carbon markets matter

It is clear that organisations are increasingly using carbon credits for purposes that extend well beyond corporate social responsibility. In hard-to-abate sectors (such as oil and gas or heavy industry), where onsite abatement technology remains costly or immature, credits enable a company to meet an emissions obligation, or support climate commitments, while it works to reduce its own operational emissions over the longer term.

For organisations and investors, carbon credits also serve a broader strategic purpose. Credits sourced through the Article 6 framework act as a transition-finance mechanism, channelling capital into renewable energy and abatement projects in developing economies that might otherwise struggle to attract investment. As quality standards mature, a pricing premium is also emerging: credits that are well documented and aligned with recognised integrity standards are beginning to command higher prices than those that are not. For investors, this quality premium is both a risk signal and an opportunity.

This evolution reflects a broader shift in how carbon credits are being valued. Historically, credits were often treated as relatively interchangeable commodities. Increasingly, however, markets are distinguishing between credits based not only on project quality but also on the legal certainty surrounding their issuance, transferability, permanence and ability to support specific regulatory or commercial claims. Legal quality is beginning to influence commercial value.

The risks around carbon credits

Price differences between carbon credits may be driven by various factors, including the crediting mechanism, the project type and location, the scarcity of carbon credits, and their ability to be used for meeting compliance obligations.

For many organisations, the principal risks no longer arise at the point a carbon credit is purchased. Rather, they emerge throughout the credit's lifecycle, from project selection and contractual allocation of risk, through corporate governance and disclosure, to the public claims ultimately supported by the credit. Organisations purchasing and using carbon credits should be mindful that legal risk arises not only from the quality of the credit itself, but also from how the credit is governed, disclosed and ultimately relied upon to support commercial and public climate claims. In particular, the following four risks:

• Integrity and quality risk which concerns whether the credit is "real" and "additional" (whether measurable emissions reduction that would not have occurred without the carbon finance). An organisation may retire a credit and build a public claim on it, only to discover that the reduction would have happened anyway (failing the "additionality" test), or that the methodology behind the credit overstated the abatement achieved.
• Operational and environmental risk which concerns whether the emissions reduction is "permanent" (endures over time). An issue may be a "reversal" - a credit generated by, for example, protecting a forest can be undone years later by a bushfire, illegal logging or land clearing, long after a company has made a public claim relying on it. For organisations, the practical consequence is that legal and reputational exposure may persist long after the acquisition of the credit itself. This is a physical risk that no amount of due diligence at the point of purchase can fully eliminate, which is why buffer pool mechanisms and insurance products are becoming increasingly important.
• Strategic and reputational risk which concerns what a company says publicly, rather than the credit itself. This is the greenwashing litigation risk: making a public claim that implies a greater contribution to decarbonisation than the credit actually delivers.
• Governance and disclosure risk concerns whether an organisation has appropriate decision-making processes around its carbon credit strategy. Carbon credit purchasing is increasingly a cross-functional exercise involving sustainability, procurement, finance, legal and board oversight. Weak governance may result in inconsistent public statements, inadequate due diligence or disclosure failures under emerging mandatory climate reporting regimes. As regulators increasingly focus on substantiation rather than aspiration, documenting why a credit supports a particular public claim may become as important as the credit itself.

A stronger carbon credit market does not neutralise litigation risk. Rather, it may increase it. As market infrastructure matures and organisations become more confident using carbon within transition plans and product claims, regulators, shareholders and activist groups are likely to scrutinise not only the quality of the underlying credits, but also whether the claims made about them are capable of substantiation. Various international and domestic standards about what constitutes a "high-quality" credit form the foundations of a high-integrity carbon market, but these frameworks do not always govern how a purchasing corporate describes its use of credits to stakeholders and regulators.

The developing carbon market may therefore pave the way for bolder carbon-neutral, net-zero or transition plan claims, ultimately increasing legal exposure. Greenwashing litigation, understood through the transition risk lens, is not a peripheral concern. It is a direct sub-category of transition (legal) risk that sits at the intersection of carbon credit strategy, public disclosure and evolving mandatory reporting obligations.

In Australia, climate activist groups have increasingly used litigation as a tool to seek to hold corporations to account for their climate-related marketing, including in the context of using carbon credits to support net-zero commitments and carbon neutral statements. The Australian government has recently acknowledged that the use of the term “carbon-neutral” has become increasingly contested, and that it is ending its certification of voluntary climate claims through the Climate Active program. As a result, companies which currently make claims about their “carbon neutral” status will need to transition away from use of this term in Australia. The Australian Government has requested feedback by 18 September 2026 on whether it should provide voluntary carbon neutral standards to fill the gap.

The retirement of Climate Active also illustrates a broader international trend. Governments are becoming increasingly reluctant to endorse voluntary climate claims while simultaneously strengthening mandatory climate reporting obligations. Rather than certifying marketing claims, regulators are increasingly expecting companies to substantiate them through governance, transparent methodologies and evidence capable of withstanding regulatory and judicial scrutiny.

Another emerging development is the gradual financialisation of carbon markets. As carbon credits increasingly appear on balance sheets, are acquired through investment vehicles or become the subject of structured transactions, legal questions traditionally associated with commodities and financial assets, including ownership, security interests, insolvency treatment and contractual allocation of registry risk, are becoming increasingly relevant. These issues remain relatively underdeveloped but are likely to become an important area of legal risk as markets mature.

Where does this leave carbon markets?

As carbon markets (whether international, national or voluntary) transition and mature in APAC, jurisdictions, investors and their counsel need to treat greenwashing litigation as a foreseeable and material transition risk, not an outlier. The risks above are inherent to the commodity nature of carbon credits; corporations remain exposed if emissions claims are not substantiated with clear methodologies, external verification and good governance. At the same time, mandatory climate disclosure obligations are raising the stakes: companies will be required to disclose their transition plans, climate-related risks (including litigation risks) and the role of carbon credits in their decarbonisation strategies.

This means that carbon credit governance is no longer a standalone risk management exercise. It must be integrated with your broader climate disclosure and transition planning obligations. A carbon credit strategy that documents credit quality, the evidentiary basis for public claims and the governance framework around offset purchases is now a baseline control, not a differentiator.

Increasingly, companies are putting in place sophisticated carbon credit purchase strategies, with different credits being purchased to serve different purposes. These include satisfaction of mandatory emissions reduction obligations, supporting voluntary corporate-wide net-zero targets, and more recently justifying claims about ‘low-carbon’ product-level emissions. Companies that can verify claims about the low-carbon status of their products may be able to win preferred-supplier status and strengthen their position in trade-exposed markets.

Looking ahead, the market is likely to become less concerned with the quantity of carbon credits available and more focused on their legal functionality. The central question will increasingly be not whether a credit represents a verified emissions reduction, but whether it is legally capable of supporting the particular regulatory obligation, financing structure or commercial representation for which it is being used. That shift is likely to reshape pricing, due diligence and contracting practices across APAC.

Key takeaways

For corporate and energy sector investors, the practical takeaway is not to avoid carbon credits — it is to approach them with the same rigour you would apply to any material risk exposure.

This means:

1. understanding the specific market layer (Article 6, national compliance or voluntary) in which each credit sits and what rules govern it; documenting why it qualifies for the specific claim being made about it;

2. ensuring that public statements about offsets and net-zero pathways are fair, transparent, substantiated and consistent with mandatory disclosure obligations; and

3. maintaining governance that can withstand scrutiny from regulators, activist litigants and, increasingly, your own shareholders.

As market infrastructure matures and credit volumes grow, and as mandatory climate reporting lifts the floor on corporate transparency, it is this discipline, rather than the sophistication of the offset itself, that will remain the primary determinant of legal exposure.

Want to know more?

• Federal Court sets the standard for corporate climate commitments (02 March 2026). Legal implications of the Federal Court's dismissal of greenwashing allegations towards Santos.
• Climate litigation in Australia: Key developments in 2025 and what's ahead for 2026 (19 February 2026). We look at the major developments in climate litigation in 2025 and what's on the horizon for 2026.

Authors: Elena Lambros, Partner, Risk Advisory; James Clarke, Partner; Jeff Lynn, Partner; Lisa Moore, Senior Associate; Patrick Stratmann, Lawyer; Laura Le, Lawyer; Sophie Tawfik, Climate Change and Sustainability Advisor and Rob Heslenfeld, Executive, Risk Advisory.