Consultancy EY calls for more compliance-based carbon removals and tighter market control

International carbon markets have “largely failed”, but are necessary to meet international climate targets, argues a report by global consultancy EY.  

The study cites estimates from the Intergovernmental Panel on Climate Change that 100–1,000 tonnes of carbon dioxide equivalent must be removed from the atmosphere for the world to meet its net zero targets. Private sector investments, through the carbon markets, can scale carbon removal projects and technologies to meet this demand, it adds.

In order to grow, carbon markets should emulate other commodity markets, such as those for energy and minerals, it suggests. 

While these markets have standardised assets, contracting structures, liquidity, depth, posted prices and accessibility, the reports finds that carbon markets operate as a series of “bespoke, esoteric” transactions between corporates.

The carbon market grew to $7bn in the first half of 2025, “a year-on-year tripling in value” but “short of its $1tn potential”, says Mike Zehetmayr, EY leader in risk, compliance and regulatory technology.

Adopting the qualities of other commodity markets would allow carbon markets to operate “robustly and at significant scale” without “reinventing the wheel”, the report argues.

To build a more structured market, all participants must treat carbon as an asset class. To do so, jurisdictions should introduce legal requirements outlining what a unit of removed carbon can and cannot be, while banks and financiers should offer structured carbon products and pre-financing agreements to ensure security and transparency, says EY.

The report calls for the integration of carbon removal credits into emissions trading schemes. Governments should make carbon removal purchase compliance based, rather than voluntary, so high-emitting sectors contribute to offsetting their carbon, it says.

A similar argument was put forward this month by the Group of Thirty (G30), an international body of financiers and academics, which claimed that compliance markets are the only way to decarbonise hard-to-abate sectors such as steel and cement. 

Scaling compliance markets would incentivise businesses to invest in green alternatives to their products, the G30 said.

The EY report is available to read here.