TheCityUK is convening a market-led UK Carbon Credit Auction Pilot to demonstrate how high-integrity carbon credits can be issued, auctioned and traded using established financial market infrastructure in the UK.
The initiative brings together market participants, infrastructure providers, policymakers and regulators to leverage transparent and repeatable carbon credit auction mechanisms in practice. It is intended to generate real-world evidence on market demand, infrastructure and the wider frameworks needed to support the development of trusted, liquid and scalable carbon credit markets.
The pilot comes as the UK seeks to strengthen its position as a global hub for sustainable finance and carbon markets, with government and industry increasingly focused on improving market integrity, transparency and confidence in the use of carbon credits.
Demand for high-integrity carbon credits is expected to grow significantly, but carbon markets remain fragmented and are not yet fully integrated with mainstream financial markets. Bespoke bilateral transactions, limited price transparency and perceived uncertainty around accounting, legal and eligibility frameworks can make carbon credits harder to finance and manage as an asset, while constraining wider market participation.
The pilot will use Intercontinental Exchange’s (ICE) established market infrastructure to examine how structured carbon credit auctions could overcome existing market barriers through greater standardisation, transparency and price discovery. It will also explore the requirements needed to give buyers, investors and intermediaries greater confidence in participating.
It reflects a wider ambition to bring together the UK’s strengths in financial and related professional services, market infrastructure and climate policy. Its findings will provide practical evidence to inform future policy, regulation and market design, while supporting the UK’s position as a leading international centre for carbon markets.
The pilot's first phase of carbon credit auctions is expected to start by the end of the year. TheCityUK is convening the initiative, with ICE providing the market infrastructure and EY providing secretariat support. Participants include the International Airlines Group, Vitol, Standard Chartered, Mercuria, Centalion, SEFE and Shell, while HM Government and the Financial Conduct Authority are engaged with the initiative as active observers.
Lucy Rigby, Economic Secretary to the Treasury said, “High-integrity carbon markets have an important role to play in supporting investment in climate and nature, while driving growth and building on the UK’s position at the forefront of global finance.
“I welcome TheCityUK’s innovative pilot, which will draw on the UK’s world-class financial market infrastructure and provide valuable real-world evidence to support the development of trusted and transparent carbon markets.”
Miles Celic OBE, Chief Executive Officer, TheCityUK, said, "The UK is already a global leader in green and sustainable finance, supported by deep expertise across financial, professional and legal services. This pilot is a practical, market-led initiative that provides an opportunity to build on those strengths and help make the UK a leading destination for trading high-integrity carbon credits.
“Channelling more private capital towards climate and nature outcomes will require trusted markets that work effectively in practice. By testing practical solutions with industry, regulators and policymakers, this pilot can help improve transparency, strengthen trust and support the development of a liquid, scalable market."
Gordon Bennett, Managing Director, Head of Environmental Markets at ICE, said, “For over two decades, ICE has built and operated the world's largest energy and environmental markets. As host of the UK Government's carbon allowance auctions, ICE runs a credible, transparent auction process that government, industry and investors rely on. This pilot builds on that track record, applying the same technology to a new class of high-integrity carbon credits, helping carbon markets scale and reinforcing the UK's role as a global centre for environmental risk management.”
Mike Zehetmayr, EY Financial Services Risk, Compliance and Regulatory Technology Leader, said, “Carbon markets are a hugely important part of the UK’s climate ambitions and its position as a global leader in sustainable finance. Continued progress now relies on confidence in both the underlying credits and the mechanisms used to value them. We’re therefore pleased to support TheCityUK in convening this industry-wide, government-supported pilot to explore how greater transparency and more robust pricing approaches could help scale deeper carbon markets and propel the transition to a lower-carbon economy.”