Everyone is saying that the voluntary carbon market (VCM) is pivoting to higher quality. But now Calyx Global and ClearBlue Markets are providing empirical evidence that it’s true. The VCM is, in fact, slowly improving on quality. Furthermore, our combined datasets suggest that higher quality is garnering higher prices.
Is a flywheel in motion? The data hints at the possible revving up of a virtuous engine: Higher prices that reward higher quality can motivate credit generators to improve the integrity of their emission reduction (or removal) claims. This could be the key to accelerating the much-needed reform of the VCM—a market without an official regulatory authority, one that lives and dies on confidence.
Buyers are increasingly demanding quality…
At Calyx Global, we work with many buyers of carbon credits. Several years ago, our customers would often come to us with particular types of credits they wanted to purchase. Often, these were forest conservation (using older REDD methodologies) or renewable energy credits. Since then, many independent studies have demonstrated that the majority of REDD and renewable energy credits have high greenhouse gas (GHG) integrity risk—either they are substantially over-claiming emission reductions, or they are questionably additional.
Meanwhile, buyer demand has changed. Both Calyx Global and ClearBlue Markets customers now say to us that they want high GHG integrity first and foremost. Some may be willing to take on higher GHG integrity risk in order to purchase credits with strong contributions to the United Nations Sustainable Development Goals, such as conserving biodiversity, improving water resources, tackling poverty or gender equality. While these beyond-carbon benefits can be an important consideration, in such cases, we would advise a buyer to fully understand their risk through in-depth due diligence.
Calyx Global is tracking progress on carbon credit quality in the VCM. The Calyx Carbon Integrity Index tracks the average quality of issuances and retirements over time. What we see (as illustrated below) is slow but steady improvement in the GHG integrity of VCM credits.
We note that issuances are a “leading” indicator, as project developers may issue credits (including to brokers or other intermediaries) in anticipation of being able to sell such credits. The biggest movement with regard to issuances was the decline of REDD and renewable energy credits. Such credits composed over 55 percent of the VCM from 2021-2023, but only 40 percent of issuances in 2024. By contrast, all other project types, in aggregate, saw increases in both issuances and retirements—suggesting that the remainder of the market is healthier than the market for REDD and renewable energy.
By contrast, retirements are a “lagging” indicator of change in carbon markets. We saw only a slight improvement in retirements, but this may reflect pre-agreed forward contracts that can take time for buyers to unwind.
…and willing to pay higher prices for it
Another behavior we have witnessed is a willingness to pay higher prices for (real or perceived) higher quality. This phenomenon has been particularly pronounced for credits that represent carbon removals from the atmosphere (as compared to reducing or avoiding emissions). Our combined datasets suggest buyers are paying higher prices for removals, irrespective of quality (see report for details). This continues to be a misperception in the market.
That said, in addition to removals, other higher-quality credits are receiving higher prices. The new Calyx-ClearBlue Carbon Price-Integrity Index shows there is a price premium for higher GHG integrity (Tier 1) credits, but this only started to occur in Q4 2023. Prior to this, higher GHG integrity credits were selling at a discount versus lower GHG integrity credits.
The change in pricing is largely due to the higher prices that REDD credits, in particular, received several years ago, at a time when buyers did not fully understand the quality issues they presented. Today, we are seeing greater demand and higher pricing for some of the “ugly ducklings” that have high GHG integrity but historically (and still) sell for a discount. These less charismatic projects include those that reduce “super pollutants” from the atmosphere—such as landfill gas or industrial-related credits.
Is the flywheel in motion?
This new dynamic can set up that virtuous engine we mentioned at the start, where higher prices that reward higher quality can accelerate the improved quality the VCM needs.
Furthermore, new tools are available to help buyers make informed choices. For example, the ICVCM, to date, has done a fairly good job of providing its coveted CCP (Core Carbon Principles) label to higher-quality credits (see report for details). This is not true of CORSIA.
That said, we do find lower-integrity credits that are CCP eligible. Discerning buyers may wish to consider additional due diligence. There are many providers of assessments on the quality of carbon credits, from ratings agencies to consultancies.
As the ICVCM motto states, “Build integrity and scale will follow.” We believe in this motto and hope to see continued, positive progress in the voluntary market—one that we will need in the coming years, particularly in places where policy has taken a backseat. The VCM can help us do more, innovate more and build constituencies for climate action that we need to avoid the dangers of climate change. To dive deeper into the data behind the indices, download the State of Quality and Pricing Report or join the report authors for a webinar on March 6 for Q&A.
