Voluntary carbon markets – trust and scalability

CARBON MARKETS

Voluntary carbon markets – trust and scalability

The voluntary carbon market (VCM) is maturing rapidly, and a succession of governance, standards and policy initiatives has been launched since 2020 to tackle weaknesses in integrity and scalability, which have constrained uptake and undermined confidence.

For the chemical sector, which includes many hard-to-abate processes such as ammonia and methanol production, and embedded process emissions, the maturing VCM offers a pragmatic mechanism to meet residual emissions, channel finance to decarbonisation in supplier regions, and manage transition risk. But the market that emerges will be materially different from that of the early 2020s, with higher minimum standards, Article 6 alignment, closer public oversight and stronger traceability. This will drive up prices, favour standardised products and demand rigorous corporate governance of offset use.

Why integrity and scale matter

VCMs were created to provide flexible, finance-mobilising routes to greenhouse gas (GHG) reductions and removals that companies and investors could use to address residual emissions. But high-profile methodological failures, questionable baselines and weak monitoring have damaged confidence. Two interdependent market failures were most important:

• Weak integrity. If credits do not represent real, additional, permanent and verifiable emission reductions or removals, then any corporate claim underpinned by those credits is at best meaningless and at worst greenwashing.

• Lack of scalability. Fragmented standards, opaque registries and a diversity of bespoke project types limited liquidity. Buyers found it hard to aggregate, price and settle future commitments reliably.

Addressing both issues is essential. Integrity protects the climate outcome and corporate reputations; scale enables efficient pricing and the mobilisation of capital at the level needed for meaningful global emissions reductions.

Major initiatives

Formed in 2020 and hosted by the Institute of International Finance, the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) published a blueprint for building a large, transparent global trading market. Its recommendations covered supply and standards, market intermediaries and demand-side governance, fundamentally reframing the VCM as a structured financial market rather than a piecemeal project registry ecosystem.

In response to the TSVCM, the Integrity Council for Voluntary Carbon Markets (ICVCM) was established in 2021 to define threshold integrity standards and provide oversight across standard setting organisations. Its 2023 Core Carbon Principles (CCPs) define ten themes across governance, emissions impact and sustainable development. The ICVCM’s screening of methodologies – including the mid2024 rejection of several renewable energy methodologies – signalled that many legacy credits would not meet future market standards. The organisation’s CCPEligibility assessments are becoming a de facto entry ticket for high-quality credits.

The Voluntary Carbon Market Integrity Initiative (VCMI), also established in 2021, developed a Claims Code of Practice that gives businesses practical guidance on how to use carbon credits credibly for nearterm mitigation and longterm netzero claims. The Code addresses both what can be claimed and how those claims should be communicated – an essential element in reducing reputational and regulatory risk for buyers.

Government initiatives

However, private governance alone cannot deliver a fully fungible, scalable international market. Governments are increasingly stepping into the space to provide legal frameworks, cross-border accounting rules and registries that prevent double counting and ensure transparency.

Notable developments include advanced economies publishing principles and charters for the use of high-integrity credits (for example, initiatives announced by the UK and France in 2025) that leverage experience from capital markets regulation to add credibility.

There has also been integration of market and compliance mechanisms in some jurisdictions: Singapore’s Carbon Pricing Act (from early 2024) allows covered entities to use a limited share of high-quality international credits to offset taxable emissions; the European Commission has proposed a constrained role for international credits in its 2040 pathway.

Finally, emerging market frameworks such as the Africa Carbon Markets Initiative and domestic VCM frameworks in Nigeria and Zimbabwe are designed both to attract finance and ensure Article 6 alignment. These policy moves are important for two reasons. First, they create demand signals by clarifying which credits are acceptable for compliance or quasi-compliance use. Second, by aligning with Article 6 accounting and registry rules, they reduce sovereign risk and the risk of double counting – a recurrent criticism of earlier VCM practice.

Article 6

The political agreement reached at COP29 in 2024 on Article 6 was a watershed. It established clear methodologies for calculating reductions/removals, set rules to prevent double counting of internationally transferred mitigation outcomes (ITMOs), and mandated an international carbon credit registry. Three Article 6 mechanisms are particularly relevant:

Article 6.2 provides accounting and reporting guidance for countries to use ITMOs towards their nationally determined contributions (NDCs). It allows a host country to sell carbon credits to a buyer country in return for investment, capacity building and technologies otherwise not available. The buyer country can use the purchased carbon credits to meet its own climate targets.

Article 6.4 establishes a new Paris Agreement Credit Mechanism (PACM), which can be used to trade high-quality carbon credits. It allows a country or a private sector entity to generate certified emission reductions (carbon credits) from projects in another country. These credits can then be sold and used by the acquiring country towards its NDC. The goal is to achieve real, measurable, and long-term mitigation, and to promote sustainable development.

Article 6.8 sets out opportunities for non-market-based cooperation for enhancing climate action. This provides a framework that does not involve carbon units or trading. It is intended to facilitate non-market ways to implement NDCs, such as cooperation on finance, technology transfer, capacity-building, and common policy frameworks such as taxation and regulatory alignment.

For the VCM, Article 6 does three things; it brings a public, sovereign accounting backdrop to a previously private market; it establishes a route for standardising and certifying high-quality international credits; and it provides an international registry framework that enables credible traceability and prevents double counting. Over time, most high-quality voluntary credits will likely be aligned with Article 6, blurring the line between voluntary and compliance markets and enabling broader fungibility.

COP29

After nearly a decade of slow to non-existent progress, COP29 in 2024 delivered a number of breakthroughs, with governments agreeing, among other things, on: clear rules on how to calculate emission reductions or removals; how to avoid double counting involving Internationally Transferred Mitigation Outcomes (ITMOs); and establishing an international carbon credit registry. CRU expects that this formalisation will be a major driver of market developments in the future, with most, if not all, carbon credits eventually aligned with Article 6 requirements.

Since COP29, an increasing number of governments have made progress on Article 6 implementation, with some countries hosting emission reduction or removal projects finalising Article 6-aligned domestic carbon credit frameworks, while others have already started cooperating bilaterally with advanced countries. The United Nations (UN) keeps track of these developments in its Article 6 Pipeline. By mid-September 2025, there had been just over 100 bilateral cooperation agreements under Article 6.2, with most host countries based in Asia (43), followed by Africa (30) and the Americas (16). Japan and Singapore lead the list of buying countries, followed by Korea and Switzerland.

Policymakers will increasingly focus on the ‘net’ in net emission reductions. As the VCM ecosystem matures, the market will grow, and demand for carbon credits should rise, as it will be increasingly recognised that meeting net targets by focusing mainly on reducing gross emissions will be difficult. This will require accepting that ‘pure’ solutions alone are unlikely to deliver the net reduction targets given the time available. We are seeing a similar change in attitude towards carbon capture and storage solutions, with the European Commission, for example, giving CCUS a much greater role in meeting net emission targets than in the past. Similarly, the Canadian government is increasingly exploring CCUS, including direct air capture solutions. These ‘compromise’ solutions were previously rejected by many climate advocates. It is likely that they will become increasingly accepted as governments reassess political and economic tradeoffs, in particular for hard-to-abate sectors, where gross emission reduction solutions are either still prohibitively expensive or do not even exist yet.

Obstacles

Some obstacles remain, including the overhang in unretired, potentially ‘low quality’ credits. CRU expects the overhang of unretired credits to be addressed over the coming years. Either project developers will deregister their projects altogether or, where possible, will relaunch them to higher specifications using the latest, more demanding standards. The latter might not be possible in all cases and could be costly for some. Demand for older vintage carbon credits, potentially seen as lower quality, should decline sharply as companies will no longer be able to use these credibly as part of their emission reduction efforts.

VCMs could also help channel financial resources to the “global south”, supporting global climate finance efforts. As climate change is a global phenomenon, it does not matter where a unit of greenhouse gas emissions is emitted, not emitted, or stored. Global cooperation should therefore be the most efficient and cheapest way to achieve any global net emission reduction targets. Internationally traded carbon credits could also help channel urgently needed financing, which could help address the remaining wide gap in global climate finance. In mid-August, the Zimbabwean government, for example, announced plans for a Loss and Damage fund financed out of Article 6-aligned carbon credit issuance, while the Nigerian government intends to use receipts from the sale of ITMOs to fund part of its climate commitments, as set out in its latest national determined contribution. More initiatives of this type from governments in developing and emerging countries are likely in the future.

All signs point to growth

Government involvement and the likely shift to focus more on net rather than gross emission reduction targets should be a further boost to market development. Overall signs therefore point to solid, potentially even rapid, long-term growth once the existing overhang of (lower quality) unretired carbon credits has been addressed. CRU expects most voluntary carbon credits to be Article 6-aligned in the future. Starting from a low base, the market could multiply its current size by 2030, with credits becoming increasingly standardised, helping price discovery.

CRU also expects the price for carbon credits to rise as newly launched credits will have to meet much more demanding standards. In many cases, this will add to a project’s cost. Moreover, demand should grow, not least as governments in advanced countries will encourage closer international cooperation.

With more governments likely to follow Singapore’s example of accepting international carbon credits towards compliance obligations, and the European Union potentially granting such credits a limited role in its future emissions targets, a convergence of pricing across the voluntary and compliance carbon markets is anticipated over time. This shift towards greater interchangeability would be significant, as high-quality voluntary credits become a viable option for meeting mandatory national targets, thereby integrating the two spheres.

The price of this combined market may also be influenced by the long-term cost of high-tech removal alternatives such as direct air capture (DAC). While DAC is currently a costly decarbonisation option that is unlikely to affect near-term prices, its increasing necessity in achieving net-zero goals – particularly as cheaper abatement options are exhausted – could eventually place an upward pressure on global carbon prices.

The era of low-priced carbon credit ‘bargains’ is ending. Regulatory changes mandate that only credits meeting rigorous minimum standards will be recognised, driving greater market efficiency and higher overall prices. Credits that incorporate co-benefits – for example, those aligned with UN Sustainable Development Goals (SDGs) – are anticipated to command an even greater price premium.

As voluntary carbon markets enter a new phase and become an increasingly viable option to reduce net emissions, businesses will need to stay up to date with the latest developments. This will be particularly true for businesses in hard-to-abate sectors, which might otherwise struggle to meet net emission reduction targets. CRU’s Sustainability and Emissions Service can provide further information on VCMs and their implications. Contact us at: https://www.crugroup.com/en/data/sustainability-and-emissions/