For those involved in the voluntary carbon market, Ecosystem Marketplace’s annual State of the Voluntary Carbon Market reports have been indispensable guides for practitioners to understand the key motions and trends developing in our somewhat obscure, sometimes information-scarce landscape.
This year’s report, aptly titled “Meeting the Moment: Renewing Trust in Carbon Finance”, follows last year’s, “On the Path to Maturity,” in which I wrote a similar analysis describing the growing pains of a burgeoning market. 2024 was the third year in a row of declining total market value, now reaching a level similar to 2020 of $535M, which could be seen as one step forward and two steps back from lofty market projections, such as McKinsey’s $50B estimate by 2030. However, a closer, under-the-hood look at this year’s numbers shed light on important developments that may indicate a more nuanced, if not more positive, outlook on the market.
Issuances and transactions are down, yet retirements hold steady
A decrease in credit issuances indicates that we are still amid a supply-side reboot towards higher quality and higher integrity credits. Carbon crediting programs may be updating their methodologies to align with developing guidance, such as from the Integrity Council for the Voluntary Carbon Market (IC-VCM), and project developers may be assessing for themselves how to update their projects considering methodology changes or even transitioning away from legacy methodologies altogether. This all takes time, hence why the market may be experiencing its current decrease in credit issuances. Looking within differing project types, the decline across issuances is doubly caused by some types facing this transition period, such as in forestry, while other types may be simply issuing less credits overall due to a slowdown in project registrations, such as in renewable energy.
The annual total volume of transactions dropped 25% from 112.4 MtCO2e in 2023 to 84.4 MtCO2e in 2024, while retirements held relatively stable. This suggests a lesser degree of speculation in the market, perhaps such as between trading desks and credit brokers, whereas the steady pace of retirement suggests an ongoing strength in credits’ purported end use case with companies. However, this flat pace of retirements may also suggest that the pool of retirees might not be growing. Further research could help us better understand whether the total number of retirees is expanding adequately or whether it may just be a smaller pool of retirees retiring more credits.
Relatedly, research from MSCI shows that companies signed a record number of nature-based offtake deals in 2024. This is a strong signal that companies are taking a longer term, forward view on the market, despite the lower volume of credits transacted and issued in 2024.
It is also important to note that the data collected by Ecosystem Marketplace comes from ten major standards: ACR, ART, BioCarbon, CAR, CDM, Cercarbono, Global Carbon Council, Gold Standard, Plan Vivo, and VCS registries. There is an influx of new standards and registries coming online from this past year alone, such as Isometric and the Ecosystem Restoration Standard, which will bring with them a higher degree of credit volumes contributing to overall market activities.
Forestry is leading change in the market
Looking deeper into the report, there is a great influx of activity arising from Forestry and Land Use projects. This corroborates with a report that the Boston Consulting Group recently released in collaboration with the American Forest Foundation, on How Forests Can Revitalize Carbon Markets. Forestry and Land Use became the most frequently retired credit type in 2024, with buyers acceleratingly retiring credits from this project type faster than developers can issue them. Forestry and Land Use also represented the largest proportion of total value in the market, equating to $342.5M of 2024’s $535M total. Of this, Forestry and Land Use also experienced the smallest drop in value year over year, only dropping 8% from $372.3M in 2023 to $342.5M in 2024.
Furthermore, transaction volumes dropped year over year for all Forestry and Land Use project types except for Improved Forest Management (IFM), which experienced a whopping 242% positive change, representing a 216% increase in value year over year from $41.9M in 2023 to $132.3M in 2024. The report also finds that removals credits from nature-based projects grew in value, such as from Afforestation, Reforestation, and Revegetation (ARR), Agroforestry and Blue Carbon. The dramatic increases in IFM may partially be in anticipation of removals-labeled credits being generated by IFM methodologies, such as in Verra’s VM0045 and ACR’s IFM 2.1 methodologies. This heightened activity in Forestry and Land Use signals an indication of a market still undergoing growth phases – early market participants are acting now and positioning themselves accordingly despite recent headwinds.
Shifting buyer preferences signal a K-shaped market recovery
The report suggests that a market recovery might not be experienced equally amongst all carbon project and credit types. A K-shaped recovery may be forming, where “VCM 2.0” carbon credits and methodologies are increasingly being preferred by buyers, leaving “VCM 1.0” credits behind as artifacts of a prior, no longer viable market. For example, the report shows a significant premium for credits from more recent vintages. While this may be because buyers are seeking to retire credits closer in line with their recent emission years, it is also a signal of buyers shifting their preference to newer, higher quality credits and methodologies.
The impact and significance of the Core Carbon Principles label by the IC-VCM also cannot be understated, as the recent slowdown in market activity may partially be explained by buyers anticipating and waiting for CCP-labeled credits. As the CCPs are slowly rolling out, the advent of the label has already produced significant early results for Landfill Gas projects, with a 149% increase in volume and a 35% increase in price. This sentiment is expected to continue for more projects and credit types as they receive the label, such as REDD+ and ARR projects.
In summary, buyers are currently seeking: 1) removals over reductions, 2) more recent vintages, and 3) CCP-labeled credits. This suggests a K-shaped recovery for the market as certain credits and project types may go the wayside in favor of buyers’ updated preferences. As the label continues its rollout, it will be interesting to observe the trajectories of CCP-aligned credits versus non-CCP credits. On a more macro level, there may be a K-shaped recovery on the buyers’ side as well, with companies that have fared better in the current macro and geopolitical environment constituting a higher proportion of buyer activity in the market, whereas lesser fortunate companies may no longer have the capital or capacities to remain engaged.
Meeting the moment versus making the moment
Observing respondent perceptions of important external factors influencing credit sales from 2023 to 2024, the largest gain is in the influence of government policies. Much like how the supply side of the market is an ongoing development, government policies regarding carbon and environmental commitments at the national and intranational levels are also still evolving. This is evident from blocs like the European Union, which are developing various frameworks such as their EU Emissions Trading System, Carbon Removals and Carbon Farming Regulation, and Carbon Border Adjustment Mechanism, all which will require a level of participation and compliance from EU-oriented companies and businesses. While these may eventually spur increased carbon credit activity, their timelines and guidelines for practical implementation are still yet to be solidified. This uncertainty feeds into why more companies are not proactively participating in the market today.
Interestingly enough, respondents also noted a decrease in influence from companies’ voluntary climate targets and an increase in the importance of certifications. This suggests that most companies are not as willing to stick their necks out on their own to differentiate themselves from competing businesses through publicized carbon or climate commitments. This may be due to being burnt in the past with public scrutiny, negative press, or scandals within the carbon market. Instead, companies together may be more confident, as we see some coalescing to safeguard themselves against potential reputational risks associated with going about it on their own. Such examples include the Beyond Alliance and Symbiosis Coalition, which contain shared criteria for investing in high integrity carbon projects. On a wider note, this signals a deference from companies away from their own accords and toward certifying bodies and standards such as the Science Based Targets Initiative, Voluntary Carbon Market Integrity Initiative and the IC-VCM.
Returning to the title of this report, “Meeting the Moment”—while the supply side of the market continues getting its house in order, today, there seems to be an outsized influence from governments and businesses in making the moment. Clearer guidelines have been meticulously debated and honed for what constitutes a high integrity carbon credit, and while some of that work remains to be charted out, much of the work now falls on governments, demand-side bodies and businesses to determine what to make of this moment. This is an opportunity for governments and businesses of distinction to shine, and to lead the way in developing the rulebooks and frameworks that will encourage fair and equitable participation in the voluntary carbon market.
