How to Sell Carbon Credits to Buyers

As global attention on climate change, net-zero targets and ESG compliance increases, carbon credits have emerged or evolved as valuable and regulated tradable instruments. Businesses and project developers that reduce or remove greenhouse gas (GHG) emissions can monetise these reductions by selling carbon credits to buyers seeking compliance with regulations or voluntary emission offsetting.

However, selling carbon credits is not a simple commercial transaction. It is a structured process governed by recognised standards, third-party verification, registry systems and legal compliance. This blog explains the officially recognised process of selling carbon credits, from project development to final payment.

Understanding Carbon Credits and Carbon Markets

A carbon credit represents the verified reduction or removal of the one metric tonne of carbon dioxide equivalent (CO₂e). These credits are issued only after emission reductions are measured, verified and certified under approved standards.

Carbon markets are broadly divided into: -

1. Compliance Carbon Markets

Used to meet legally binding emission reduction obligations, such as cap-and-trade systems or government-mandated schemes.

2. Voluntary Carbon Markets (VCM)

Used by companies to meet voluntary net-zero, ESG or sustainability commitments. Most private carbon credit trading currently takes place in voluntary markets.

Step 1: Identify an Eligible Carbon Credit Project

Only projects that deliver real, measurable, additional and permanent emission reductions are eligible for carbon credit generation. Common recognised project types include: -

• Renewable energy (solar, wind, hydro, biomass)
• Energy efficiency improvements
• Afforestation and reforestation
• Methane capture and waste management
• Industrial process emission reduction
• Agriculture and soil carbon projects

Additionality is critical, the project must reduce emissions beyond what would have occurred under normal business conditions.

Step 2: Conduct a Carbon Audit and Establish a Baseline

Before carbon credits can be issued, emissions must be quantified using an approved methodology.

This involves: -

• Establishing baseline emissions (emissions without the project)
• Measuring actual emissions after project implementation
• Calculating the net reduction in CO₂e

This step is usually supported by technical consultants and follows methodologies prescribed by recognised carbon standards.

Step 3: Register the Project with a Recognised Carbon Standard or Authority

Carbon credits can only be issued under approved standards and registries. Depending on the market, projects may require approval from a national authority before registration.

Commonly recognised international standards include: -

• Verra – Verified Carbon Standard (VCS)
• Gold Standard
• Clean Development Mechanism (CDM) (legacy projects)
• Article 6 mechanisms under the Paris Agreement (emerging)

In India, projects must also align with the domestic carbon market frameworks where applicable.

Registration requires submission of a Project Design Document (PDD) containing: -

• Project description and location
• Applicable methodology
• Baseline and additionality analysis
• Monitoring, reporting and verification (MRV) plan
• Expected emission reductions

Without registration under a recognised and prescribed standard, carbon credits cannot be sold.

Step 4: Independent Third-Party Verification and Credit Issuance

After the process of implementation and monitoring, the project undergoes independent third-party verification by an accredited verification body.

The verifier assesses: -

• Accuracy of emission reduction data
• Compliance with approved methodologies
• Additionality and permanence
• Reliability of monitoring systems

Once verification is successful, carbon credits are issued and recorded electronically in the project owner’s registry account.
Each issued credit represents one tonne of CO₂e reduced or removed.

Step 5: Choose the Appropriate Selling Route

Once credits are issued, sellers may choose from the following recognised selling routes: -

1. Carbon Exchanges

Credits are traded on regulated or voluntary carbon exchanges, offering transparency and standardised transactions.

2. Over-the-Counter (OTC) / Direct Sales

Credits are sold directly to buyers such as corporates, airlines or multinational companies. This route usually provides better pricing and long-term contracts.

3. Aggregators or Carbon Consultants

Aggregators pool credits from the multiple sellers and handle or manage buyer access, documentation and compliance. This is appropriate for the various first-time or small-project developers, though a commission applies.

Step 6: Identify Buyers and Negotiate Commercial Terms

Typical buyers of carbon credits include: -

• Large industrial and manufacturing companies
• Export-oriented businesses
• Multinational corporations
• Airlines and logistics companies
• Financial institutions
• Government and public sector entities

Carbon credit pricing depends on: -

• Project type and sustainability impact
• Certification standard used
• Vintage year of the credits
• Market demand and supply
• Geographic location

A carbon credit sale agreement generally covers price per credit, volume, delivery schedule, payment terms and registry transfer obligations.

Step 7: Transfer and Retirement of Carbon Credits

Once commercial terms are finalised: -

• Credits are electronically transferred from the seller’s registry account to the buyer’s account
• The registry records ownership changes to prevent double counting
• Buyers may retire the credits to offset emissions

Registry-based transfers ensure transparency, traceability and authenticity.

Step 8: Payment and Accounting Treatment

Payments are made as per the agreed contract and may include: -

• Lump-sum payments
• Milestone-based payments
• Escrow arrangements for large transactions

Proper invoicing, accounting treatment and documentation are essential, especially for cross-border transactions.

Legal, Tax, and Compliance Considerations

Selling carbon credits involves important legal and financial aspects: -

• Clear and enforceable contracts
• Tax treatment depending on classification of income
• GST or indirect tax implications, where applicable
• Compliance with domestic and international carbon market regulations

Professional legal and tax advice is strongly recommended.

Common Mistakes to Avoid

• Selling unverified or uncertified credits
• Using unrecognised standards or registries
• Double selling or double counting credits
• Inadequate or inaccurate documentation
• Ignoring regulatory or tax compliance

Such errors may lead to reputational damage, penalties or the invalidation of credits.

Conclusion

To sell carbon credits is a structured and organised, standards-driven process that converts verified emission reductions into economic value. By following recognised procedures, from project identification and baseline assessment to certification, registry issuance and secure transfer, businesses can participate credibly in carbon markets.

As compliance and voluntary carbon markets expand in India and globally, carbon credit trading offers a significant opportunity for organisations committed to sustainability, ESG performance and long-term climate responsibility.