The legal architecture of carbon markets: from global governance to corporate accountability

Roberto Iván Flores Rangel

Von Wobeser y Sierra, México City
rflores@vwys.com.mx

Ana Diener Moreno
Von Wobeser y Sierra, México City
adiener@vwys.com.mx

The global carbon market

The global carbon market is undergoing a decisive transformation. With Article 6 of the Paris Agreement now in motion, carbon trading has expanded beyond compliance regimes into complex voluntary markets intersecting with finance, corporate disclosure and transnational governance.

Standards such as ISO 14064, the Core Carbon Principles and the Voluntary Carbon Market Initiative have introduced greater transparency, yet the rule of law has not kept pace. There is still no shared legal language, no harmonised definitions and the treatment of carbon credits as financial or contractual assets is not consistent.

While no universal framework exists, the European Union’s Emissions Trading System (EU ETS) remains the most consolidated example of market-based climate regulation. Its maturity highlights global asymmetry: most jurisdictions lag behind, with fragmented rules and limited enforceability.

The gap between compliance markets as per Article 6 and voluntary schemes governed by private standards generates uncertainty over ownership, double counting and legal recognition. The challenge is legal, not technical: converting measurement, reporting and verification (MRV) systems into enforceable rights and obligations.

This article argues that credible carbon trading depends on enforceable contracts, verifiable data and transparent governance. Lawyers play a decisive role, not as passive interpreters, but as architects of market integrity.

Regulatory and normative architecture

Articles 6.2 and 6.4 of the Paris Agreement outline a global trading system based on additionality, permanence and traceability, yet its interpretation remains uneven. The EU ETS, the Carbon Border Adjustment Mechanism and the Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464) have given these standards legal form within Europe. Elsewhere – across Latin America, Asia and Africa – countries are experimenting with domestic Article 6 structures, often with limited coordination.

This pluralism fosters innovation, but highlights the absence of a shared legal taxonomy for carbon assets. The MRV framework, according to which emission reductions are measured and verified, sits at the core of market credibility. When properly designed, MRV becomes a governance mechanism, translating data into legally relevant proof.

Digital traceability and interoperable registries can make transactions enforceable, but only when data is contractually recognised and admissible as evidence. Lawyers bridge this gap by embedding MRV protocols into contracts, governance and dispute resolution.

Private certification systems – Gold Standard, Verified Carbon Standard and Climate Action Reserve – remain central to market trust, although their authority is largely voluntary. Soft law instruments like ISO 14064 and UNCITRAL/UNIDROIT now analyses bridge private standardisation and public enforceability. The next step is to transform these principles into hard law, so that they are binding, predictable and globally coherent.

Contractual design and transaction models

The strength of carbon markets lies not in policy, but in contracts. Emission reductions payment agreements (ERPAs), forwards and spot trades define risk, ownership and delivery obligations, but their enforceability depends on how precisely they incorporate MRV results, verification processes and registry evidence.

These instruments mark a shift in contract law – performance now extends to proving environmental outcomes. Due diligence reports, verification certificates and title attestations form the evidentiary chain supporting compliance. New models, such as securitisation and tokenisation through smart contracts, test the limits of traditional doctrines of liability and ownership.

For companies, compliance must be integrated, not improvised. Environmental, social and governance (ESG) committees, legal oversight and standardised operating procedures can align accountability, verification and reporting. Rigorous due diligence and periodic audits should turn compliance into institutional confidence, not mere formality.

Legal risks and mitigation strategies

The global expansion of carbon markets presents complex legal risk. Standards remain fragmented, verification rules evolve and the recognition of credits across borders is inconsistent. This weakens contractual certainty and increases stakeholder exposure to disputes.

Beyond non-delivery or invalidation, companies face growing scrutiny over ESG claims and greenwashing. A poorly verified ‘carbon neutral’ statement can now have reputational and financial consequences.

Mitigation requires clarity, namely well-drafted ERPAs with clear liability allocation, independent verification clauses, insurance mechanisms and regular compliance reviews. Strong governance, including audits, whistleblower systems and board reporting, anchors these safeguards in practice. Predictability builds trust, and the rule of law remains the foundation of credible markets.

Final considerations

Carbon markets are no longer experimental; they are now pillars of climate governance. The question is not whether they will function, but under what legal architecture they can endure.

This is where the legal profession must lead. Lawyers who engage with carbon markets do more than interpret regulation – they define its boundaries. Translating climate ambition into enforceable obligations is both a technical and ethical responsibility.

The future of the carbon economy will depend less on political ambition than on legal craftsmanship: the ability to turn policy into rules, and rules into trust.