Carbon markets have become increasingly important as a cost-effective pathway for companies and countries to reduce emissions in a world struggling to meet its climate goals. They can mobilize private capital, particularly in developing countries where clean technology financing remains scarce, and provide hard-to-abate sectors with access to solutions that would otherwise be out of reach. Climate finance pledges are materializing – the $100 billion goal was finally met and the Loss and Damage Fund launched, both in 2022 – but public funding alone remains too limited and slow. Moreover, around 1,400 of the world’s largest companies have set climate commitments with both interim and long-term targets. Near-term milestones are approaching, and direct cuts can be insufficient or costly, so more organizations are turning to carbon credits to help meet goals and stay on track towards net zero.
Today, most trading occurs across fragmented initiatives: some under regional, national or sectoral compliance schemes or globally through voluntary action – most of which operate with diverging standards and eligibilities. Progress at last year’s COP29 conference on operationalizing Article 6 of the Paris Agreement on climate change marked a step towards a global, standardized market. However, implementation will be slow: methodologies must be developed, infrastructure built, and political compromises resolved. In the meantime, integrity risks persist, and the market’s credibility depends on non-governmental initiatives that are setting tougher standards. The Integrity Council for the Voluntary Carbon Market’s (ICVCM) Core Carbon Principles – already referenced by several jurisdictions – signal this shift. Developers are issuing credits under these new rules, though buyers remain slower to adapt, with most retirements still tied to older, weaker methodologies.
Meanwhile, demand remains resilient. Retirements have already reached 110 million credits so far this year, outpacing last year’s levels at the same point in time by 5%, spanning sectors from energy and utilities to aviation and logistics. Tech-based removals are expanding rapidly – about 24 million credits sold so far this year, up 166% on 2024 – though supply is constrained by high costs, limited project pipelines and long delivery timelines. Nature-based removals and high-quality reductions, therefore, will remain essential, even if not all credits can achieve perfect one-to-one equivalence with emissions. The critical question is whether the whole system delivers durable climate value, not whether each credit is flawless.
The trajectory is clear: carbon markets are moving from a credibility crisis towards higher integrity, though progress remains uneven. Success will depend on whether reforms – both regulatory and voluntary – can deliver the transparency and durability needed to satisfy climate goals and compliance demand. In a decarbonization landscape where many other pathways are stalling, carbon trading remains a vital – if imperfect – lever for mobilizing finance and accelerating climate action.
By Petter Atrchi Aspestrand, Product Manager of Carbon Markets Research at Rystad Energy
