Carbon Credits as Collateral: What Lenders Check

Emission allowances in the European Union have been financial instruments under MiFID II since 2018, and the EU's trading system raised more than 43 billion euros from them in 2025. Australia classes its carbon credit units as personal property that can secure a registered loan. A major European clearing house accepts allowances as margin cover. Against that backdrop, the voluntary carbon market, which retired 182 million tonnes of credits in 2024, almost never sees a credit pledged against a loan. Whether carbon credits can be collateral turns on four tests, and they explain the gap.

Test one: what is the credit, legally?

A lender's first question is not price. It is whether the thing being pledged is property the borrower owns and the law will let the lender seize.

Compliance allowances answer that question clearly in the two largest systems. The European Securities and Markets Authority's preliminary report on emission allowances confirms that allowances are financial instruments under MiFID II, which brings them inside market-abuse, transparency and conduct rules. The same report notes a gap: allowances are not within the scope of the Financial Collateral Directive, the EU regime that gives lenders fast enforcement rights over cash and securities collateral. The European Commission consulted in 2021 on extending that regime. Lenders in Europe can take allowances as security, but under general law rather than the streamlined collateral rules that apply to a government bond.

Australia went further. The Clean Energy Regulator states that an Australian carbon credit unit is personal property, and the units were prescribed as investment instruments under the Personal Property Securities regime in 2012. A lender can register a security interest over them the same way it would over shares. China's Guangdong province has issued working guidelines for bank loans secured on emission allowances, and provincial banks have written such loans since the system's early years.

Source: https://carbon-pulse.com/?p=201187

Voluntary credits have no equivalent status. A credit issued under a private standard is a contractual entitlement under that registry's terms of use. Nothing in US federal law defines it as property, and the registry's terms can restrict transfer, cancel units or change methodology. A lender can still take a security interest in a contract right, but it is underwriting the registry's rulebook as much as the credit.

Test two: can the lender perfect and control it?

Property that the lender cannot lock down is not collateral. For allowances and credits, the lock is the registry account.

Every major system records ownership by electronic entry in a registry, with no certificate. The Australian registry's own description is instructive: it tracks the ownership of units but does not record security interests over them. The lender perfects its interest in a separate register and relies on the borrower not moving the units in the meantime. The standard fix is control: the units sit in an account the lender controls, or in a custodian's account under a three-party agreement that blocks transfers without the lender's consent.

Voluntary registries make this harder. Accounts are opened by the project proponent or by a buyer that has passed the registry's onboarding, and many registries limit account holders to parties with an operational interest in the credits. A bank that wants a controlled account may not be eligible to open one. The workaround is a custodian that holds the registry account and issues a record of the lender's interest, which is the same arrangement that tokenized credit structures use.

That is where a digital record helps. When a custodian holds the registry account and issues a token for each serial-numbered credit, the token becomes the object the lender controls, and the 2022 amendments to the US Uniform Commercial Code define control of such a record and the rights that come with it. The underlying credit stays in the registry. The lien attaches to a controllable record that can be frozen, transferred or liquidated in minutes. This is the structure we describe in our piece on carbon credit inventory as a treasury function: the registry stays the system of record, and the digital layer supplies the control that lending requires.

Test three: how big is the haircut?

A lender advances a percentage of collateral value and sets the percentage by how far the price can fall before it can sell. Carbon pricing gives two different answers depending on the credit.

Compliance allowances trade continuously on regulated venues with published daily prices, futures curves and clearing. A lender can mark the collateral every day and set a haircut from observed volatility, which is why a clearing house can accept them as margin cover for contracts where the allowance is the deliverable.

Source: https://www.sec.gov/files/rules/sro/iceeu/2022/34-96270.pdf

Voluntary credits are the opposite case. Ecosystem Marketplace's data for 2024 shows transaction volume down 25% from the prior year, total transaction value of about $535 million, average prices down 5.5%, and retirements near their post-2021 highs at 182 million tonnes. Volume shrinks while use holds up, which means price discovery is thinning exactly when buyers still want the credits. Prices also disperse by methodology, vintage, project type and rating in ways that no single reference price captures. A removal credit from a well-rated project and an older avoidance credit from the same registry can differ in price by an order of magnitude.

Source: https://www.ecosystemmarketplace.com/publications/2024-state-of-the-voluntary-carbon-markets-sovcm/

A lender facing that dispersion cannot use a market haircut. It has to underwrite each credit as a separate asset: methodology, buffer pool exposure, reversal risk, rating, vintage and whether a corporate buyer would accept it. That is expensive, and it is why most voluntary credit financing today takes the form of forward purchase agreements and prepayments rather than secured loans against inventory.

Test four: can the lender get out?

The last test is enforcement. If the borrower defaults, the lender needs to sell the collateral to a buyer who can take delivery.

For allowances, the exit is a sale on a regulated venue or delivery against a futures contract. For voluntary credits, the exit depends on finding a buyer who is eligible to hold a registry account, who accepts that methodology and vintage, and who is not retiring the credits for a reason the lender cannot satisfy. A corporate buyer wants a credit that fits a specific claim. A lender selling seized inventory does not control what claim the buyer intends to make.

Tokenized records widen the buyer pool because a custodian-held token can transfer to any eligible investor without the buyer opening a registry account. Secondary transfer among a larger set of holders is what turns an enforceable lien into a usable one. Our piece on verified cash flow as collateral makes the same point for income streams: the lender's exit is only as good as the next holder's ability to verify what it is buying.

What a financeable carbon position looks like

The four tests converge on a short specification. A carbon position that can secure a loan at a reasonable advance rate has:

1. A defined legal object. An allowance in a compliance system, a unit with statutory property status, or a controllable electronic record issued by a custodian against serial-numbered credits.
2. Control. The registry account, or the token that mirrors it, sits where the lender can freeze it. The custodian's holding is attested independently and often, so the token count and the registry count can be compared without trusting either party's spreadsheet. That is the role proof-of-reserve feeds play for metal and cash, and the same design applies to credits.
3. A price the lender can mark. Observed trades for the exact credit type, or a rating and methodology bucket with enough transaction history to set a haircut.
4. A buyer pool. Eligible holders who can take transfer without a registry onboarding, so a forced sale clears in days rather than quarters.

Compliance allowances meet all four tests today, which is why they already finance balance sheets in Europe, Australia and China. Voluntary credits fail tests two through four for structural reasons that have nothing to do with their climate value. A custodial, verifiable, transferable record fixes the structural part. The underwriting part still has to be done credit by credit, and a lender that can see the registry, the attestation and the trade history on one screen will do it faster than one working from PDFs. That is the model Commertize applies to carbon alongside gold, energy and property on its marketplace: the asset stays where the law says it lives, and the record that lenders and buyers rely on is the one they can verify.

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