Competition Law and Carbon Trading Markets and Competition

1. Introduction

Carbon trading markets are designed to place an economic value on greenhouse-gas emissions and to allow businesses to trade emission allowances or carbon credits. The principal models include:

1. Cap-and-trade systems – a regulator establishes an emissions ceiling and issues tradable allowances.
2. Carbon-credit markets – participants buy credits representing verified emission reductions, removals, or avoidance.
3. Compliance markets – participation is required by law.
4. Voluntary carbon markets – businesses purchase credits voluntarily, often for climate commitments.
5. Carbon exchanges and trading platforms – intermediaries provide trading, clearing, settlement, data and related services.

Competition law becomes important because carbon markets themselves are markets. Participants may possess market power over allowances, carbon credits, exchanges, verification services, registry access, market data, trading technology or infrastructure.

At the same time, carbon markets are unusual because their structure is heavily influenced by government regulation. Therefore, competition law must operate alongside environmental regulation.

2. Meaning of Competition in Carbon Trading Markets

Competition can arise at several different levels.

A. Competition between carbon-credit suppliers

Different projects may supply credits generated from:

• forestry;
• renewable energy;
• methane capture;
• carbon capture;
• industrial efficiency;
• soil-carbon projects;
• carbon removal.

If a small number of suppliers control a large proportion of high-quality credits, market power concerns may arise.

B. Competition between trading platforms

Carbon allowances and credits may be traded through:

• exchanges;
• broker-dealer platforms;
• electronic trading systems;
• bilateral OTC markets.

An exchange possessing substantial market power could potentially discriminate against competing platforms or restrict access to important trading infrastructure.

C. Competition in verification

Carbon-credit markets depend heavily on:

• verification;
• certification;
• monitoring;
• measurement;
• registry services.

If certification is controlled by a small number of entities, exclusionary conduct or discriminatory access can become significant.

D. Competition in market data

Carbon-market participants require information concerning:

• allowance prices;
• credit prices;
• transaction volumes;
• project quality;
• historical trading;
• benchmarks.

Control over essential market data can create competition concerns.

3. Relevant Competition-Law Principles

A. Article 101 TFEU / Cartel Rules

In jurisdictions such as the EU, agreements between competitors concerning carbon markets can raise cartel concerns.

Examples include competitors agreeing to:

• fix carbon-credit prices;
• restrict supply;
• divide customers;
• manipulate auctions;
• coordinate bidding;
• exchange commercially sensitive trading information.

The environmental purpose of the market does not automatically immunise an agreement from competition law.

4. Carbon-Market Price Fixing

Competitors could theoretically agree that carbon credits should trade at:

• a minimum price;
• a particular benchmark;
• a predetermined discount;
• a common commission.

Such conduct can constitute price coordination.

For example, if several carbon-credit suppliers agree that credits of a particular methodology should never be sold below a specified price, the arrangement could restrict price competition.

The fact that the agreed price is intended to finance climate projects would not, by itself, eliminate the competition issue.

5. Bid Coordination in Carbon Auctions

Carbon allowances are frequently distributed through auctions.

The EU ETS, for example, uses auctioning as the principal allocation mechanism, with auction rules designed to operate in an open, transparent and non-discriminatory manner.

Competition concerns may arise if bidders:

• coordinate bids;
• agree not to compete for particular lots;
• exchange bidding strategies;
• manipulate auction prices;
• divide auction opportunities.

Therefore, conventional bid-rigging principles can apply to carbon allowance auctions.

6. Abuse of Dominance

A carbon-market undertaking may become dominant because of:

• control over a major exchange;
• control over a registry;
• ownership of critical carbon-market data;
• access to a large portfolio of high-quality credits;
• control over verification infrastructure;
• network effects.

A dominant undertaking could potentially engage in:

Refusal to deal

A major carbon exchange could refuse access to a competing trading platform without legitimate justification.

Discriminatory access

A registry or verification provider could give preferential access to an affiliated business.

Predatory pricing

A dominant trading platform might temporarily price its services below cost to eliminate competing platforms.

Excessive pricing

A dominant provider of an indispensable carbon-market service could potentially charge excessive fees, subject to the applicable legal test.

Self-preferencing

A platform could give preferential visibility or execution to its own carbon products.

7. Essential-Facility Issues

Carbon trading can involve infrastructure that resembles an essential facility.

Potential examples include:

• carbon registries;
• mandatory compliance databases;
• unique verification systems;
• indispensable trading platforms;
• critical market-data systems.

The essential-facility doctrine is generally applied cautiously. Mere importance is insufficient. The relevant question is whether the facility is genuinely indispensable and whether exclusion substantially restricts competition.

8. Carbon Credits and Market Definition

Market definition is particularly complicated.

Possible relevant markets include:

Product markets

• compliance emission allowances;
• voluntary carbon credits;
• carbon-removal credits;
• forestry credits;
• methane credits;
• renewable-energy credits;
• industrial carbon credits.

A regulator may need to determine whether these products are substitutes.

For example, a compliance allowance may not be a close substitute for a voluntary carbon-removal credit because they have different legal functions.

Geographic markets

Markets could be:

• national;
• regional;
• EU-wide;
• global;
• linked to a particular compliance system.

Regulatory recognition is particularly important because a carbon credit accepted in one compliance scheme may not qualify in another.

9. Merger Control in Carbon Markets

Carbon-market consolidation can raise competition issues where companies combine across:

• carbon exchanges;
• brokerages;
• registries;
• certification;
• carbon-credit generation;
• carbon-market data;
• carbon-trading software.

A merger could create:

Supplier concentration → reduced choice → higher fees → restricted access → weaker innovation.

Vertical mergers may also matter.

For example:

Carbon-credit producer + carbon exchange

could create incentives to favour the merged company's own credits.

Similarly:

Carbon registry + verification provider

could create concerns if competing verification companies receive inferior access.

10. Carbon-Market Data and Competition

Data is increasingly important.

Trading platforms may possess information concerning:

• transaction prices;
• volumes;
• buyers;
• sellers;
• project quality;
• credit retirement;
• trading patterns.

If a dominant platform controls commercially significant data and prevents competitors from obtaining it, competition concerns may arise.

This is particularly important where the data is necessary for:

• price discovery;
• risk management;
• market entry;
• credit valuation.

11. Sustainability Agreements and Carbon Markets

Carbon markets frequently involve cooperation between competitors.

For example, companies might cooperate to:

• establish common carbon accounting standards;
• develop environmental verification methodologies;
• create interoperable registries;
• improve credit-quality standards;
• establish common technical protocols.

Such cooperation may generate environmental benefits.

However, the agreement must still be examined to determine whether it unnecessarily restricts competition.

The key distinction is between:

legitimate environmental standardisation

and

using environmental standards as a mechanism for excluding competitors.

12. Six Important Case Laws

Because there are relatively few reported judgments specifically involving competition-law liability for manipulation of carbon markets, the most useful authorities are cases concerning the EU ETS, market structure, competition, allocation and the interaction between environmental regulation and competition principles.

Case 1: Arcelor Atlantique et Lorraine and Others v Premier ministre and Others

Case C-127/07, Court of Justice of the European Union

Facts

The case concerned the compatibility of the EU emissions-trading framework with principles of equal treatment and the treatment of different industrial sectors.

Principle

The Court examined whether differences in treatment under the emissions-trading regime could be justified by differences in the situations of the regulated sectors.

Competition relevance

Carbon markets inevitably create different competitive conditions between industries depending upon:

• allowance allocation;
• regulatory coverage;
• compliance obligations;
• carbon costs.

The case demonstrates that the design of an emissions-trading system can have significant implications for competitive conditions.

Significance

Competition analysis of carbon markets cannot be separated completely from the regulatory architecture establishing the market.

Case 2: Iberdrola and Others v Comisión Nacional de los Mercados y la Competencia

Joined Cases C-566/11, C-567/11, C-580/11, C-591/11, C-620/11 and C-640/11

Facts

The proceedings concerned national measures affecting electricity generators within the context of the EU emissions-trading system.

Principle

The Court considered the objectives underlying the EU ETS, including:

• reducing greenhouse-gas emissions;
• economic efficiency;
• preservation of the internal market;
• competitive conditions.

The EU ETS therefore pursues environmental objectives while also interacting with market competition.

Competition relevance

The case is particularly useful for understanding why carbon-market regulation must consider competitive neutrality.

Key lesson

A regulatory mechanism concerning carbon costs can have substantial effects on competition between undertakings.

Case 3: PPC Power a.s. v Minister for the Environment

Case C-302/17

Facts

PPC Power challenged aspects of the EU emissions-trading framework concerning the treatment of greenhouse-gas allowances.

Principle

The Court explained that the EU ETS is designed to promote greenhouse-gas reductions in a cost-effective and economically efficient manner.

Competition relevance

The case demonstrates that allowance scarcity and trading are fundamental components of the market mechanism.

The value of allowances is not simply administratively fixed; market forces influence their price.

Importance

This principle is central to competition analysis because manipulation of supply, demand or trading conditions can undermine the market-based mechanism.

Case 4: Republic of Poland v European Parliament and Council

Case C-5/16

Facts

Poland challenged the EU Market Stability Reserve concerning the functioning of the EU ETS.

The dispute concerned the structural surplus of allowances and the mechanism designed to address that surplus.

Principle

The Court recognised the importance of maintaining the effectiveness of the EU ETS and accepted that the Market Stability Reserve could affect the quantity of allowances entering the market.

Competition relevance

The case illustrates that market supply is a fundamental component of carbon-market competition.

If allowance supply becomes structurally distorted, the competitive and economic functioning of the market may also be affected.

Key lesson

Competition in carbon markets must be understood alongside regulatory mechanisms affecting scarcity.

Case 5: Carmeuse Holding v European Commission

Case T-554/22

Facts

Carmeuse challenged the European Commission's treatment of free allocation of EU ETS allowances.

Issues

The case involved:

• free allocation;
• allocation tables;
• equal treatment;
• legal certainty;
• EU ETS regulation.

Competition relevance

Free allocation can materially influence the competitive position of undertakings because allowances represent an economic resource.

If competing undertakings receive materially different treatment, questions concerning competitive neutrality can arise.

Importance

The case is useful when analysing how carbon allowance allocation can affect competition between industrial producers. The General Court's judgment was delivered on 11 December 2024.

Case 6: Nitrogénművek Vegyipari Zrt. v Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága

Case C-519/24, judgment of 16 April 2026

Facts

Nitrogénművek challenged a Hungarian tax imposed on CO₂ emissions in circumstances where the undertaking received substantial free EU ETS allowances.

Principle

The Court held that EU ETS rules preclude national legislation that effectively neutralises the compensatory effect of free allocation where it conflicts with the objectives of preserving competitiveness and preventing carbon leakage.

Competition relevance

This is particularly important for competition analysis because the Court expressly connected the ETS framework with:

• competitiveness;
• carbon leakage;
• internal-market integrity;
• conditions of competition.

Significance

The decision demonstrates that carbon-market regulation can directly affect the competitive position of undertakings.

13. Additional Competition-Law Authorities Relevant to Carbon Trading

Although not carbon-market cases themselves, conventional competition cases provide important analytical principles.

United Brands v Commission

Case 27/76

Useful for:

• market definition;
• dominance;
• refusal to supply;
• discriminatory conduct;
• excessive pricing.

These principles can potentially apply to dominant carbon-market infrastructure.

Bronner v Mediaprint

Case C-7/97

Important for the modern restrictive approach to refusal-to-deal and essential-facility arguments.

It is relevant where access to:

• carbon exchanges;
• registries;
• verification systems;
• market infrastructure

is alleged to be indispensable.

Magill

Joined Cases C-241/91 P and C-242/91 P

Relevant to exceptional circumstances in which refusal to provide information can constitute abusive conduct.

This can become relevant to carbon-market data where a dominant undertaking controls indispensable information.

Aéroports de Paris v Commission

Case C-82/01 P

Useful for understanding the application of competition rules to infrastructure operators.

Its reasoning can inform analysis of carbon-market infrastructure where an operator controls access to a critical facility.

14. Cartel Risks in Carbon Trading

The principal cartel risks include:

15. Abuse-of-Dominance Risks

A dominant carbon-market platform could potentially face scrutiny for:

1. Refusal of access

Blocking competitors from necessary infrastructure.

2. Discrimination

Providing different access terms to similarly situated participants.

3. Self-preferencing

Promoting affiliated carbon products.

4. Margin squeeze

Charging high upstream access prices while competing downstream.

5. Tying

Requiring users to purchase verification, data or brokerage services together with trading services.

6. Exclusive dealing

Preventing carbon-credit suppliers from using competing marketplaces.

7. Predatory pricing

Using below-cost pricing to eliminate competing platforms.

16. Competition Problems in Carbon-Credit Certification

Certification can become a bottleneck.

Suppose only a few organisations can certify a particular type of carbon-removal project.

Potential concerns include:

• discriminatory certification;
• excessive certification fees;
• exclusion of competing methodologies;
• preferential treatment of affiliated projects;
• refusal to recognise competing verification systems.

However, quality-control requirements can also have legitimate environmental purposes.

Competition analysis therefore has to distinguish between:

necessary integrity standards

and

unnecessary exclusionary restrictions.

17. Greenwashing and Competition

Carbon markets also create a relationship between competition law and misleading environmental claims.

Businesses may advertise:

• "carbon neutral";
• "net zero";
• "100% offset";
• "climate positive."

If competitors make environmental claims based on materially different credit standards, consumers may be misled.

This can generate issues under:

• consumer-protection law;
• unfair-trading rules;
• advertising law;
• competition law.

The competitive problem is particularly significant where misleading environmental claims provide an artificial advantage over competitors that use more rigorous carbon accounting.

18. Carbon-Market Concentration

Concentration may occur at several levels:

Project developers

↓

Credit aggregators

↓

Verification/certification

↓

Registries

↓

Trading platforms

↓

Brokers

↓

Corporate buyers

A merger involving multiple levels of this chain may create both horizontal and vertical competition concerns.

19. Vertical Integration

Consider:

Carbon-credit producer → registry → exchange → broker

If one company controls several stages, it could theoretically:

• favour its own credits;
• disadvantage rival projects;
• restrict rival brokers;
• control market information;
• increase competitors' costs.

Therefore, vertical integration should not automatically be regarded as harmful, but its foreclosure effects may need examination.

20. Competition Between Compliance and Voluntary Markets

The relationship between compliance and voluntary markets is increasingly important.

A company may have access to:

• regulated emission allowances;
• voluntary carbon credits;
• carbon-removal credits;
• renewable-energy certificates.

These products can have different legal and environmental characteristics.

Competition authorities may therefore need to examine actual substitutability, rather than assuming that every instrument representing one tonne of CO₂-equivalent has the same competitive function.

21. Remedies

Where competition problems are established, possible remedies include:

Structural remedies

• divestiture of trading assets;
• separation of registry and trading functions;
• divestiture of overlapping businesses.

Behavioural remedies

• non-discriminatory access;
• transparent fees;
• interoperability;
• prohibition of exclusivity;
• information firewalls;
• independent governance.

Data remedies

• access to essential market information;
• transparent pricing;
• data portability;
• standardised APIs.

Auction remedies

• independent auction administration;
• monitoring of bidding;
• prohibition on information sharing;
• bid-monitoring systems.

22. China Perspective

China's national carbon market is particularly relevant to competition analysis because carbon allowances are linked to a regulated compliance framework.

Potential competition issues include:

1. concentration among carbon-market intermediaries;
2. trading-platform access;
3. allowance allocation;
4. carbon-market data;
5. verification services;
6. broker concentration;
7. coordinated trading;
8. manipulation of allowance prices;
9. discriminatory access;
10. integration between large industrial participants and carbon-market services.

Chinese competition analysis would need to consider the Anti-Monopoly Law, sector-specific carbon-market regulation and the regulatory framework governing the national emissions-trading system.

23. India Perspective

For India, carbon-market competition should be analysed against the developing Carbon Credit Trading Scheme framework together with the Competition Act, 2002.

Potential issues include:

• concentration among carbon-credit exchanges;
• dominance by verification agencies;
• discriminatory access to registries;
• coordination among credit suppliers;
• manipulation of carbon-credit prices;
• information exchange;
• exclusive arrangements;
• merger of carbon-credit platforms;
• market foreclosure through control of certification or data.

The Competition Commission of India could potentially become relevant where carbon-market participants engage in conduct falling within prohibitions concerning anti-competitive agreements or abuse of dominant position.

24. Key Legal Tests

A competition authority examining a carbon market would generally ask:

Step 1 – What is the relevant market?

Is it:

• carbon allowances;
• voluntary credits;
• removal credits;
• a particular methodology;
• trading services;
• certification;
• registry services?

Step 2 – Who has market power?

Examine:

• market shares;
• barriers to entry;
• network effects;
• switching costs;
• regulatory permissions;
• access to data.

Step 3 – What conduct occurred?

Determine whether there was:

• agreement;
• unilateral exclusion;
• discrimination;
• tying;
• refusal to deal;
• merger;
• coordinated conduct.

Step 4 – What was the competitive effect?

Consider:

• price;
• output;
• quality;
• innovation;
• market access;
• choice;
• environmental integrity.

Step 5 – Are there legitimate environmental justifications?

The authority should distinguish genuine environmental efficiencies from restrictions that unnecessarily suppress competition.

25. Important Principle

The central principle is:

Environmental regulation does not make a carbon market immune from competition law, but competition law must be applied with recognition of the regulatory and environmental objectives of the carbon-trading system.

The EU case law illustrates this particularly well. The EU ETS is simultaneously intended to reduce emissions efficiently and preserve the integrity of the internal market and competitive conditions.

26. Conclusion

Carbon trading markets create a distinctive competition-law environment because the market is partly created by regulation.

Competition concerns can arise through:

• carbon-credit price fixing;
• auction manipulation;
• market allocation;
• trading-platform dominance;
• registry access restrictions;
• verification bottlenecks;
• discriminatory access;
• carbon-market data control;
• vertical integration;
• mergers;
• exclusionary sustainability standards.

The most important case-law lesson is that carbon-market regulation must preserve both environmental effectiveness and competitive neutrality. The EU ETS authorities and courts have repeatedly recognised that the scheme is intended to operate through market mechanisms while also pursuing environmental objectives. Recent case law, including Nitrogénművek, reinforces the importance of maintaining competitive conditions when designing national measures interacting with the ETS.

Core Cases to Remember

1. Arcelor Atlantique et Lorraine v Premier ministre, C-127/07
2. Iberdrola and Others, Joined Cases C-566/11 and others
3. PPC Power v Minister for the Environment, C-302/17
4. Poland v European Parliament and Council, C-5/16
5. Carmeuse Holding v European Commission, T-554/22
6. Nitrogénművek Vegyipari Zrt. v NAV, C-519/24
7. United Brands v Commission, 27/76
8. Bronner v Mediaprint, C-7/97
9. Magill, Joined Cases C-241/91 P and C-242/91 P
10. Aéroports de Paris v Commission, C-82/01 P