Emissions Trading: Key to Climate Protection and Decarbonisation

• Emissions trading promotes innovation and investment in climate-friendly technologies through carbon pricing, driving global decarbonisation forward.
• The EU utilises the Carbon Border Adjustment Mechanism (CBAM) to account for emissions beyond its borders, ensuring a level playing field for competition.
• Emissions-intensive companies are required to purchase carbon credits, while project-based voluntary markets also exist; however, the lines between these approaches are increasingly blurring.
• The quality and transparency of credits are crucial for their effectiveness, with Commerzbank supporting its clients through its extensive expertise.

The European Union (EU) is also increasingly relying on this instrument. This is why it simplified the “Carbon Border Adjustment Mechanism” (CBAM) at the end of October 2025. This mechanism applies a carbon price to certain imports into the EU that is linked to the European trading system.

The aim of the EU regulation is to account for emissions generated outside of European borders. "This will further accelerate the development of international carbon markets, as countries respond to the European border adjustment mechanism in various ways," says Manuel Höchemer, who is responsible for carbon market development in the commodity sales division at Commerzbank. The EU is not alone in this regard: back in 2014, the Canadian province of Quebec and the US state of California established a joint carbon emissions market. South Korea has had a nationally regulated market since 2015.

A Central Role in Global Decarbonisation

The principle behind emissions trading is as simple as it is effective: for every tonne of carbon emitted, companies must surrender emission allowances. The total quantity of these allowances is determined by government institutions – such as the EU or national authorities – and is gradually reduced over time. As a result, the available emission volume decreases, while the emerging market price highlights the cost of carbon emissions

"The rising carbon price provides companies with an incentive to invest in climate protection and innovation," says expert Höchemer. As such, he believes that emissions trading will play a central role in global decarbonisation.

Specifically, companies with activities that heavily impact climate change – such as energy providers or energy-intensive industries – are legally required to participate in emissions trading markets. By 2034, most such companies will need to purchase the necessary allowances in the market. At the same time, the CBAM ensures a level playing field, for example, by applying the same carbon price to steel produced within Europe as to steel originating outside European borders.

In parallel, there is a project-based voluntary market (Voluntary Carbon Market, VCM), where companies invest in concrete climate protection initiatives such as reforestation, renewable energy, or carbon capture and storage projects to offset unavoidable emissions.

The line between mandatory and voluntary carbon trading is increasingly blurring. Commerzbank supports its clients in both markets, helping develop strategies for participation and ensuring access. It offers tailored solutions along the entire carbon value chain.

Today, emissions trading is far more than just a regulatory tool, according to Höchemer. It drives innovation and plays an indispensable role in worldwide efforts to combat climate change. "Climate change is a global challenge that requires global solutions. International carbon markets will play a central role in this process," emphasises Manuel Höchemer.