The carbon market is a dynamic and fast-moving space within sustainable finance. As it is nascent, fintechs, regulators, and financial institutions are still in the process of standardising and organising the carbon
market so that carbon credits can mitigate climate change and propel us down the road to net zero. Weighing up where we stand amid all the development and innovation in climate finance, this article is a roundup of some of this year’s key milestones.
1. Carbon prices are rising
Carbon pricing revenues were over $100 billion last year, half of which was allocated to environment, infrastructure, and development projects.
World Bank data finds that more countries and economies are
implementing carbon pricing and emissions trading systems (ETS) to monitor carbon pricing instruments.
The research demonstrated that carbon pricing covers around 28% of global greenhouse gas emissions, and supply of carbon credits is surpassing demand. Unretired credits amounted to nearly 1 billion tonnes in 2024.
Source:
The World Bank
Axel van Trotsenburg, World Bank senior managing director,
commented: “Carbon pricing remains a powerful tool for advancing multiple policy goals. It helps countries cut emissions, raise domestic revenues in tight fiscal environments, and stimulate green growth and job creation. Carbon credit markets can also help
mobilise private capital and channel funds to development priorities.”
Oxygen Conservation
revealed last month that premium UK carbon credits are set to rise to £500 per tonne by 2050, highlighting the fiscal potential of nature-based finance as a driver of fintech and of climate change mitigation.
Currently, carbon credits in the UK are priced at £125 per tonne, and natural capital finance is becoming increasingly essential to global banks and businesses.
Chris Winter, director of natural capital at Oxygen Conservation, commented on the prediction: “The financial world has just received a clear signal of an impending economic shift – one that will redefine asset valuations globally. Tackling climate change
is the greatest challenge and greatest opportunity of our time. It is triggering the single largest repricing event in financial history and as 2030 net zero deadlines tighten, businesses are demanding credible, high-impact solutions. Premium carbon credits
provide that, and the market knows it. The time to invest is now.”
In March this year, Arup, Wilder Carbon, and Nattergal made a
£1 million deal for 10,000 UK nature-based carbon credits priced at £100 per tonne – showing just how valuable carbon credits are becoming.
2. Implementation of insurance frameworks for carbon credits
In July, leading carbon registries
Verra and Gold Standard both released new frameworks that allow insurers to manage the risk and make carbon credits eligible for the Carbon Offsetting and Rediction Scheme for International Aviation (CORSIA).
Verra and Gold Standard will now perform insurance evaluations to ensure credits are verified and that they qualify for CORSIA. Verra’s Verified Carbon Units from 2021 onwards are eligible for CORSIA if they are authorised under Article 6, have a corresponding
adjustment, or are supported by CORSIA Accounting Representation and an approved insurance claim. The 2021 COP26 ratified Article 6, and agreed that countries can transfer emissions reductions and incentivise private investments in climate-friendly solutions.
Margaret Kim, CEO of Gold Standard,
stated: “To enable climate action for people and nature, we need to broaden access to new and growing markets, including CORSIA. By recognising insurance policies through a rigorous assessment process and allowing their use to address political risk, we
can enable more projects to supply credits for CORSIA’s first phase, in a way that is credible, reliable and based on solid foundations.”
These moves integrate insurance into the operations of the carbon market; inserting further evaluations and instilling more quality checks throughout the carbon credit exchange process.
3. ‘Premium’ carbon is becoming more lucrative
The years 2022 and 2023 saw a loss of faith in the carbon credit market due to lower quality credits and bad actors. Deforestation credits were oversold, and the credits themselves were not correctly verified, leading to loss of trust in the process and
a consequential decline in investment. As a result, in 2024 the Integrity Council for the Voluntary Carbon Market’s (ICVCM) Core Carbon Principles (CCP) was rolled out to provide guidance and standardisation in the sector.
World Bank data finds that the price of carbon credit varies across types of credits, with nature-based removal credits classified as ‘premium’ – since they are expected
to also benefit the community and combat biodiversity loss.
Sam Carew, strategic markets editor at Fastmarkets Carbon, commented on the pricing of CCP-approved credits: “The carbon market is splitting into two tiers based on CCP certification. While we haven’t seen clear price premiums yet for nature-based credits
trading at $30 per tonne, more institutional buyers are demanding CCP-certified credits in their purchasing requirements and systematically excluding non-certified options. With the bulk of market surplus in non-CCP approved credits, this shift suggests that
credits without CCP certification could become harder to sell and may trade at lower prices in the coming months.”
The carbon market as a whole is becoming more standardised and the credits are rising in quality, and therefore in price.
In an exclusive
conversation in May with Hirander Misra, CEO and founder of ZERO13, he outlined how the carbon market is still in its infancy, decentralised, and lacking standardisation. He noted that carbon will soon become a more tradeable asset class – thus growing
in significance within the sustainable finance sector.
There are key developments taking place within the carbon market – as the investment in carbon offsets increases and more countries become involved in carbon trading to reach climate goals, regulation and standardisation is taking shape.
