Building Carbon Markets as an Institutional Asset Class
Emergence: Institutionalizing Carbon Markets, a new white paper from a coalition of economists, bankers, technologists and environmental scientists convened by Triangle Digital.
A renaissance in carbon markets, powered by institutional adoption, has emerged and is accelerating the transition to a new era of energy transition, climate resilience, and sustainable growth. This paper argues that the voluntary carbon market is undergoing a structural evolution, moving from a fragmented, credibility-challenged, by-appointment market, sometimes referred to as a “farmers market,” into an institutional-grade asset class where banks can custody these assets and use them for collateral, lending, and structured products; enterprises can add them to their balance sheets as pre-paid inventory; and asset managers can add them to their portfolios and funds.
Demand is no longer discretionary. Regulatory frameworks and disclosure regimes are converting emis-sions into measurable financial liabilities, while corporate net-zero commitments and science-based targets are creating durable, long-term demand for high-quality credits. At the same time, international trade mechanisms and the gradual convergence with compliance markets are embedding carbon costs directly into global economic activity, reinforcing the shift toward standardized, verifiable, and high-integrity instruments.
Against this backdrop, the market opportunity extends far beyond traditional offsetting. Carbon is increasingly positioned as a core financial primitive, one that can be priced, traded, and embedded across transactions, from point-of-sale consumer activity to structured financial products and credit markets. Realizing this opportunity requires parallel advances in market infrastructure and financial instruments that enhance liquidity, transparency, and scalability. Unlocking institutional capital at scale requires coordinated action: policymakers must establish clear regulatory classifications and market rules; financial institutions must integrate carbon into trading, settlement, custody, and risk systems; and project devel-opers must adopt higher standards of data integrity and standardization.
The tools to scale carbon markets already exist. The defining challenge is integration and execution. If stakeholders align around credible standards and regulated, interoperable infrastructure, carbon markets can expand from a niche mechanism into a foundational component of global financial systems, capable of mobilizing capital at the scale required to address climate change. The guiding principle is to achieve the quickest energy transition at the lowest possible cost to society.
Questions people ask
Why is the voluntary carbon market too small to fund the climate transition?
The paper argues this isn't a demand problem. The market runs at roughly $2 billion a year against a trillion-dollar, gigaton-scale need, and the gap exists because carbon was never built as financial infrastructure. It lacks consolidated registries, qualified custodians, ratings comparable to bond markets, and a reliable price tape, so institutions have no rails to hold the asset at scale.
What compliance rules are creating structural demand for carbon credits?
IFRS/ISSB disclosure regimes now cover roughly 73% of global GDP outside the US. CBAM starts pricing carbon into EU imports in 2026. CORSIA faces a shortfall of about 251 million tons a year against current supply of 295 million tons of high-quality credits. New York's Local Law 97 fines buildings up to $268 per ton. These are compliance obligations with dollar figures attached, not voluntary sustainability programs.
What is a carbon warrant and how does it work?
A carbon warrant lets a lender price a borrower's future carbon credit generation into a loan's terms, before those credits exist. In the paper's case study, a regenerative farm used a carbon warrant funded by credits it hadn't yet generated, and that cut the interest rate on a $250,000 loan facility from 8% to 5.5%.
Does the paper address the fraud and greenwashing allegations against carbon markets?
Yes, directly. It addresses The Guardian's investigations into inflated claims and weak additionality, and argues the failures were structural rather than fatal, the result of a market that grew without registries, custody, ratings, or settlement rails built for institutional scale. It treats the credibility question as answered in principle and moves on to what infrastructure would let a bank hold a credit the way it holds a bond.
Is the paper's policy agenda, like the proposed carbon legislation, already law?
No. The paper includes draft legislative language for federal digital-commodity treatment of carbon credits, and a proposed New York framework linking Local Law 97 to a state carbon registry. It says plainly that these sections are policy proposals and advocacy, not settled law, so readers should treat them that way rather than as an existing regulatory framework.
What's the difference between buy-and-retire and buy-and-bank carbon strategies?
Buy-and-retire is the current default: a company purchases a credit and immediately retires it against an emissions claim. Buy-and-bank is the paper's proposed shift, where credits are instead held, financed, and used as collateral, similar to how a bond is treated, supported by tokenized registry assets, digital MRV verification, and instruments like carbon warrants.