The writer is managing director of the Carbon Policy and Markets Initiative at the High Tide Foundation
Given past public criticisms, many would speculate that the voluntary carbon market is in turmoil.
Sceptics have loudly questioned the credibility and integrity of projects, which weakened investor confidence and raised concerns about reputational risks and the effectiveness of the market.
Some of the criticism from past years was warranted, unleashing a wave of reforms. These reforms have largely occurred out of the public eye but are transforming how carbon markets function.
Today, reform efforts have spurred a new era for the VCM — one defined by the latest science, and higher transparency and quality.
New methods of measuring carbon using remote sensing and artificial intelligence — along with distributed and on-the-ground data collection systems such as internet of things-enabled devices and mobile platforms — are transforming our ability to cost-effectively, accurately and transparently measure and assess the impact of carbon pollution reduction and removal projects around the globe.
“Projects saw a 35% increase in pricing once they were awarded ICVCM’s seal of approval”
Recognition of best-in-class crediting methodologies, standards and approaches is being standardised and made public through the work of the Integrity Council for Voluntary Carbon Market and the further development of the rule book under the Paris agreement emissions trading provisions.
Recent market signals indicate that the desired impact of these reform efforts has already taken root, shaping a very different market of the future among buyers.
Coming of age
In the first six months of 2025, voluntary carbon credit retirements hit a record high of 95mn, mostly boosted by activity in newer registries active in the market.
Projects saw a 35 per cent increase in pricing once they were awarded ICVCM’s seal of approval.
According to a Bloomberg New Energy Finance report, the VCM is anticipated to achieve a valuation of more than $1.1tn annually by 2050, unlocking financing to support climate change mitigation. Much of that support would be applied in the global south where the effects of climate change are most severely felt.
Recent data from Ecosystem Marketplace found that despite headwinds, demand remains strong and credit value is increasing. The market is rewarding higher-quality credits as it undergoes a significant supply-side reboot in response to increasingly sophisticated buyers demanding project transparency and quality. The VCM is coming of age.
Its next order of business is to bolster high-integrity supply to strengthen investor confidence and to move from the hundreds of millions of dollars it is today to the billions the planet needs it to be.
Policy crossroads
Today, leading corporations — including Microsoft, Meta and Netflix — are investing in climate action via the VCM.
However, an absence of policy is stymying further private sector investment in these nascent markets. The total value of credits traded last year — $530mn — is about a quarter of 2021’s market size, and the lowest transaction volume since 2018.
With reform efforts well under way, policy must be rolled out in tandem to support investor confidence and buyer clarity in the next era of the VCM.
Countries are integrating high-integrity carbon credits into their current and future decarbonisation strategies, and new alliances are forming, with one recently announced by Singapore, the UK and Kenya.
These countries are coming together to indicate their support for carbon markets in accelerating climate action and financing for frontline communities hit hardest by the effects of a rapidly changing climate.
Well-designed policy will provide parameters to help companies determine which credits are legally and reputationally robust, encouraging corporate involvement in the VCM and driving greater transparency and accountability. This will boost confidence and help drive market growth.
Complementary roles
Strong legal and institutional frameworks — alongside modern, interoperable market infrastructure that is aligned with financial market principles — can provide oversight to enable the market’s rapid growth.
California’s cap-and-trade programme provides a strong case study of what impactful voluntary-to-regulatory transitions can look like.
In the early 2000s, California established two new non-profits to implement one of the first voluntary climate programmes in the country for companies in order to test, learn and pilot approaches to measuring greenhouse gas pollution and actions to address it.
After the passage of the state’s landmark climate legislation in 2006, state regulators drew heavily from the lessons learned and infrastructure and methods developed under the voluntary programmes.
The two non-profits laid the groundwork, helping to build political will and buy-in, which helped pave the way for future regulatory action. We are seeing the same today in the evolution of the voluntary market to a verified market that crosses both voluntary and regulatory systems and action.
A missed opportunity
The European Commission’s Green Claims Directive had an opportunity to increase VCM confidence and support the market’s positive trajectory — but even in its latest form it is failing to deliver.
Due to its vague guidelines for corporate engagement with the VCM, the GCD missed a crucial opportunity to support increased VCM integrity and provide policy parameters to amplify investor confidence.
As the EU works to renegotiate the GCD, it has an opportunity to include thoughtful parameters around the use of carbon credits that increase investor confidence in high-integrity credits, and learn from the lessons and experiences of the voluntary market.
As negotiators continue their push for consensus on explicit and accurate consumer guidance, they must also provide needed clarity for corporations on claims related to the use of carbon credits.
Ultimately, policy can either support voluntary climate action or discourage it. Let us work together to establish clear, credible, consistent rules that encourage ambitious climate action, not discourage it.
This article first appeared in Sustainable Views, a sister publication of The Banker
