Carbon Markets and Switzerland: How Swiss Traders Are Positioning in the Compliance and Voluntary Carbon Economy

Carbon is the newest commodity that the Geneva trading houses are learning to trade at scale. It is also the most politically contested, the most methodologically complex, and — depending on how the next decade of climate policy unfolds — potentially the most valuable. Understanding carbon markets requires understanding two distinct systems that operate according to different rules, serve different purposes, and are at very different stages of maturity: the compliance carbon markets created by government regulation, and the voluntary carbon markets created by corporate demand for emissions offsets.

Switzerland sits at an interesting intersection of both. Its national emissions trading system is formally linked to the European Union’s Emissions Trading System — the world’s largest and most liquid compliance carbon market. Its major trading houses — Mercuria, Vitol, Gunvor, and Trafigura — have all built or are building carbon trading desks. And Swiss foreign policy under Article 6 of the Paris Agreement has positioned Switzerland as an active purchaser of international carbon credits through bilateral agreements with a range of developing countries.

Compliance Carbon: How Cap-and-Trade Systems Work

Compliance carbon markets are created by government regulation. The logic of a cap-and-trade system is straightforward: regulators set a maximum total quantity of greenhouse gas emissions permitted across a covered sector (the “cap”), issue allowances equal to that cap, and require covered installations to surrender one allowance for each tonne of CO2 they emit. Companies that reduce emissions below their allocation can sell surplus allowances; companies that emit more than their allocation must buy additional allowances on the market.

The cap-and-trade mechanism creates a carbon price signal — the cost of emitting one additional tonne of CO2 — that, in theory, drives investment toward lower-carbon technologies and practices. Unlike a carbon tax (which fixes the price but not the quantity of emissions), a cap-and-trade system guarantees the quantity of emissions but allows the price to fluctuate.

The key compliance carbon markets relevant to Swiss traders are the EU ETS and the Swiss ETS.

The EU Emissions Trading System: The World’s Benchmark

The EU Emissions Trading System, launched in 2005, covers approximately 40% of EU greenhouse gas emissions — primarily power generation, heavy industry (steel, cement, chemicals, aviation), and most recently maritime shipping. The EU ETS is the world’s largest and most liquid carbon market, with hundreds of millions of European Union Allowances (EUAs) traded annually on exchanges (primarily ICE Futures Europe in London) and in the OTC market.

The EU ETS price — denominated in euros per tonne of CO2 equivalent — is the benchmark carbon price for European industry and finance. After a prolonged period of low prices caused by over-allocation and weak demand (prices fell below €5/tonne in the early 2010s), the EU ETS price rose dramatically following a series of structural reforms, reaching €50-60/tonne by 2021 and briefly touching €100/tonne in early 2023 before pulling back to a range of approximately €50-70/tonne through 2024 and into 2025.

The EU Fit for 55 legislative package — adopted to align EU climate policy with a 55% emissions reduction target by 2030 compared to 1990 levels — introduced several structural changes that have significantly tightened the ETS. The Linear Reduction Factor (the rate at which the annual cap declines) was increased from 2.2% per year to 4.3% from 2024 and 4.4% from 2028. Free allocation to industry is being phased out. The Carbon Border Adjustment Mechanism (CBAM) has been introduced to prevent carbon leakage. These reforms are broadly bullish for EU ETS prices on a structural basis over the next decade.

For commodity traders, EU ETS allowances are a liquid, exchange-traded commodity with well-developed futures, options, and swaps markets. ICE EUA futures contracts — denominated in euros per metric tonne of CO2, with contracts for every December delivery month — allow traders to take price exposure to EU carbon. The EUA market has many of the characteristics of other energy commodity markets: physical delivery (of allowances, via registry transfer), futures curves with contango/backwardation structures, and active participation by both compliance buyers (industrial companies managing their allowance positions) and financial traders (hedge funds, commodity trading advisors).

The Swiss ETS: Europe’s Pioneer Bilateral Linkage

Switzerland operates its own emissions trading system, established under the CO2 Act and administered by the Federal Office for the Environment (BAFU). The Swiss ETS covers approximately 55 large industrial installations and the aviation sector, representing a fraction of the total emissions coverage of the EU ETS.

The Swiss ETS is structurally similar to the EU ETS — it uses EUAs, sets annual caps, and requires covered installations to surrender allowances for their verified emissions. The critical distinctive feature of the Swiss ETS is its formal linkage to the EU ETS, which entered into force in January 2020 following the signing of the Switzerland-EU ETS Linking Agreement.

Under the linkage, Swiss allowances (CHUs — Swiss Trading Units) are mutually recognised with EU allowances: a Swiss covered installation can surrender EUAs to meet its Swiss compliance obligation, and an EU covered installation can surrender CHUs to meet its EU obligation. The practical effect is that Swiss and EU carbon prices are closely aligned — both reflect the supply-demand balance of the combined linked market.

The linkage is significant beyond Switzerland’s domestic emissions. It establishes a template for how national carbon markets can be integrated with the EU ETS — a model of relevance to other European countries (Norway, Iceland, and Liechtenstein are also linked through the EEA) and potentially to countries beyond Europe that are developing or expanding carbon pricing systems.

For Swiss traders, the EU-Swiss ETS linkage means that trading EUAs and CHUs is effectively the same market. Geneva-based trading desks can participate in EU carbon market liquidity while operating under Swiss regulatory jurisdiction. The linkage also means that EU ETS market developments — reform legislation, policy debates, price movements — directly affect Swiss carbon compliance costs and trading opportunities.

Voluntary Carbon Markets: The VCM Opportunity and Its Challenges

Voluntary carbon markets (VCMs) operate independently of government cap-and-trade systems. Companies purchase voluntary carbon credits — also called carbon offsets — to compensate for emissions they have been unable to reduce, as part of corporate net-zero or carbon neutrality claims. Unlike compliance markets, VCM participation is not legally required; it is driven by corporate sustainability commitments, investor pressure, and reputational incentives.

The two principal certification standards for voluntary carbon credits are Verra’s Verified Carbon Standard (VCS), which issues Verified Carbon Units (VCUs), and Gold Standard, a Swiss-based certification organisation founded by WWF Switzerland and other NGOs. Gold Standard is headquartered in Geneva and has been a prominent advocate for high-quality voluntary carbon market standards — a connection that gives Switzerland particular relevance in global VCM governance.

Voluntary carbon credits are generated by projects that avoid or remove greenhouse gas emissions: avoided deforestation (REDD+), renewable energy development, cookstove distribution, methane capture, reforestation, and increasingly, engineered carbon removal (direct air capture, biochar, enhanced weathering). The price of voluntary carbon credits varies enormously — from below $1 per tonne for low-quality nature-based credits to $100/tonne or more for high-quality engineered removal credits.

The scale of voluntary carbon market demand has grown substantially with corporate net-zero commitments: major multinationals in aviation, shipping, financial services, and consumer goods have pledged to reach net-zero emissions and have purchased carbon credits as part of that commitment. At peak VCM optimism in 2021-2022, analysts projected the market reaching $50-150 billion annually by 2030.

The 2023 VCM Credibility Crisis

The voluntary carbon market’s trajectory was significantly disrupted by a series of investigative journalism pieces published beginning in January 2023. A Guardian/Zeit investigation examined the quality of carbon credits generated by Verra’s REDD+ (avoided deforestation) programme — the largest category of voluntary carbon credits by volume.

The investigation, drawing on academic research by several university groups, concluded that the vast majority of examined REDD+ credits were “phantom credits” — that is, they represented emissions reductions that had not in fact occurred because the baseline deforestation scenarios used to calculate avoided deforestation were substantially overstated. Subsequent peer-reviewed research reinforced these concerns, finding that a significant fraction of REDD+ credits examined had additionality and permanence problems.

The market impact was immediate and severe. Several major corporate buyers suspended new VCM purchases pending review of credit quality. Airlines and other companies that had made prominent net-zero claims based on carbon offsets faced reputational scrutiny. Verra’s CEO resigned. Carbon credit prices across most categories fell sharply.

For Geneva trading houses that had invested in VCM desks and carbon credit origination — Mercuria most prominently, but also Trafigura and Vitol — the 2023 credibility crisis created a difficult environment. The trading opportunity had not disappeared — carbon credits continued to trade, and demand from buyers with robust credit selection frameworks continued — but the market had contracted significantly from its 2022 peak.

The credibility crisis has accelerated demand for higher-quality voluntary carbon credits: engineered removals (direct air capture, biochar) where permanence is more demonstrable, nature-based credits with more rigorous baseline methodologies, and credits verified under enhanced standards from ICVCM (Integrity Council for the Voluntary Carbon Market). Geneva traders with origination relationships in premium credit categories are better positioned in this environment than those dependent on bulk REDD+ supply.

Swiss Trading Houses and Carbon Desk Development

Mercuria is the Geneva house that has invested most systematically in carbon market capabilities. The company has built dedicated origination teams — specialists who identify, structure, and finance carbon credit projects in developing countries — alongside secondary market trading teams that buy and sell credits in existing markets. Mercuria’s carbon strategy encompasses both compliance (EU ETS) and voluntary markets, reflecting its broader thesis that carbon will become a mainstream commodity alongside oil and metals.

Vitol has developed carbon trading capabilities within its energy transition portfolio, focusing particularly on biofuel regulatory credits and EU ETS allowances. The company has been building connectivity between its LNG and biofuels books and its carbon desk — recognising that counterparties increasingly want bundled services that include carbon offsetting or carbon reduction credentials alongside commodity supply.

Gunvor has built a carbon trading desk as part of its broader sustainability and compliance investment. Gunvor’s carbon activities are more focused on compliance market trading — EU ETS allowances, Swiss ETS units — than on VCM origination.

Trafigura has developed carbon trading operations that connect its physical commodity supply chains with carbon market opportunities. The company’s port and logistics infrastructure in developing countries creates potential for carbon project origination related to land-use change, sustainable agriculture, and industrial efficiency in regions where Trafigura already has operational relationships.

ICE Futures and the Financialisation of Carbon

For all the discussion of voluntary carbon credit quality, the dominant carbon market activity for Geneva traders is exchange-traded compliance carbon. ICE Futures Europe’s EUA futures contracts are the primary instrument — these are standardised, exchange-cleared contracts with excellent liquidity and a transparent settlement price mechanism.

Daily trading volumes in EUA futures regularly exceed 50 million tonnes of CO2 equivalent. The futures curve extends multiple years into the future, allowing industrial companies to hedge long-dated carbon price exposure and traders to take views on policy-driven price trajectories. Options markets on EUAs provide additional volatility-trading opportunities.

The financialisation of the EUA market — the growing presence of financial traders, hedge funds, and commodity trading advisors alongside industrial compliance buyers — has made EU carbon increasingly similar in market microstructure to WTI or Brent crude oil. Geneva traders with established commodity futures trading capabilities can participate in EUA markets using familiar risk management frameworks and trading technologies.

Article 6 of the Paris Agreement: Switzerland’s Bilateral Carbon Deals

Article 6 of the Paris Agreement establishes frameworks for international carbon market cooperation — allowing countries to use internationally transferred mitigation outcomes (ITMOs) to meet their nationally determined contribution (NDC) targets. Article 6 is significant because it creates a pathway for sovereign-level carbon credit transfer that is distinct from, and potentially more credible than, voluntary corporate carbon market transactions.

Switzerland has been one of the most active countries in pursuing Article 6 bilateral agreements. The Federal Council’s international climate finance strategy includes specific programmes to purchase ITMOs from developing countries — creating demand for internationally transferred emission reductions that developing countries can supply by implementing mitigation projects.

Switzerland has signed bilateral carbon purchase agreements with Peru, Ghana, Vanuatu, Dominica, and several other countries. These agreements — sometimes structured as government-to-government deals, sometimes involving private sector intermediaries — create demand for high-integrity carbon credits with clear sovereign backing.

For Geneva-based traders, Switzerland’s Article 6 activity is relevant because it signals Swiss policy support for international carbon markets and creates potential commercial intermediation opportunities at the intersection of government procurement and private carbon market infrastructure.

2025-2030 Outlook

The structural outlook for compliance carbon markets — EU ETS particularly — is constructive. The tightening of the ETS cap under Fit for 55, the phaseout of free allocation, the expansion of the ETS to new sectors (maritime, buildings and road transport under ETS2), and the introduction of CBAM all point toward sustained structural support for EU ETS prices over the medium term.

Voluntary carbon markets face a more uncertain trajectory. The post-2023 credibility repair process — led by ICVCM’s Core Carbon Principles and the progressive adoption of higher methodological standards — is ongoing. Market recovery is likely to be gradual and differentiated: premium credits from high-integrity projects will recover first and strongest, while bulk commodity-grade credits may face sustained price pressure.

For Swiss trading houses, the medium-term carbon market strategy involves maintaining and developing EU ETS trading capabilities (the most immediate and liquid opportunity), selectively positioning in high-quality voluntary carbon credits with demonstrable additionality and permanence, and building long-term origination pipelines for carbon removal credits that are likely to command premium prices as demand for durable removals grows through 2030.

Carbon is not a replacement for oil trading. But for the Geneva trading houses looking at the commodity landscape of the 2030s, it is increasingly clear that carbon price risk management will be as essential a skill as crude oil price risk management. The houses that are building those capabilities now — through EU ETS trading, VCM origination, and Article 6 intermediation — are investing in competitive infrastructure for the energy transition era.

Related Coverage

• Energy Transition Trading: How Swiss Trading Houses Are Pivoting from Oil to Green Energy
• Green Hydrogen Trading: Switzerland’s Commodity Houses Enter the Future Energy Market
• Mercuria Energy Group: Geneva’s Commodity Trader and Energy Transition Pioneer
• Crude Oil Markets: How Geneva’s Traders Dominate Global Physical Oil
• Russia Sanctions and Swiss Commodity Traders: SECO Compliance and Market Impact

Frequently Asked Questions

What is the difference between the EU ETS and the Swiss ETS?

The EU Emissions Trading System is the world’s largest compliance carbon market, covering approximately 40% of EU greenhouse gas emissions across power generation, heavy industry, and aviation. The Swiss ETS is a smaller national system covering large Swiss industrial installations. Since January 2020, the two systems are formally linked, meaning Swiss allowances and EU allowances are mutually recognised, prices closely track each other, and traders can participate in the combined market.

What is a voluntary carbon credit?

A voluntary carbon credit represents one tonne of CO2 equivalent that has been avoided or removed from the atmosphere through a specific project, such as prevented deforestation, renewable energy development, or engineered carbon removal. Unlike compliance allowances required by law, voluntary credits are purchased voluntarily by companies seeking to offset emissions as part of net-zero or carbon neutrality commitments. They are certified by independent standards such as Verra’s VCS or Gold Standard.

How did the 2023 Guardian investigation affect carbon markets?

The January 2023 Guardian investigation, drawing on academic research, concluded that a significant portion of REDD+ avoided deforestation voluntary carbon credits did not represent genuine emissions reductions. This triggered a significant market repricing with voluntary carbon credit prices falling sharply, several major corporate buyers pausing purchases, and Verra undergoing leadership changes. The result has been a market shift toward higher-quality credits with more rigorous methodologies.

What is Article 6 of the Paris Agreement and why does it matter for Switzerland?

Article 6 of the Paris Agreement creates frameworks for countries to cooperate on carbon markets, allowing internationally transferred emission reductions to count toward national climate targets. Switzerland has been one of the most active countries in signing bilateral Article 6 agreements with Peru, Ghana, Vanuatu, and others, purchasing internationally transferred mitigation outcomes to help meet its own climate commitments. This signals policy support for international carbon markets and creates potential commercial opportunities for Geneva-based traders.

What is the outlook for EU ETS carbon prices through 2030?

The structural outlook for EU ETS prices is broadly supportive, driven by tightening of the annual cap under Fit for 55, the phaseout of free allocation to industry, and expansion of the ETS to maritime shipping and the new ETS2 for buildings and road transport. Analyst consensus ranges broadly from 60 to 100 euros per tonne by 2030, with near-term prices sensitive to energy market conditions, industrial output, and policy implementation pace.

Donovan Vanderbilt is the founding editor of ZUG OIL. The Vanderbilt Portfolio AG, Zurich.