Carbon Credits Market

Global Carbon Credits Market Report (2024 to 2029)

The global carbon credits market is expected to witness a promising CAGR of 26.8% during the forecast period.

Current Scenario of the Global Carbon Credits Market

Presently, there is an immediate requirement for lowering emissions and decarbonising economies. Similarly, in December 2023, India declared their Carbon Credit Trading Scheme (CCTS), which both carbon reduction and carbon dioxide removal (CDR) projects. In the same way, the government of the United States reported that it plans to release harder standards to propel high-integrity carbon credits to protect the trading regimes to accelerate real emission reductions instead of just greenwashing shortly. However, the market saw a sharp decline in carbon credit prices to its lowest point since July 2021, ranging around 52 euros per ton of CO2. Nonetheless, the global carbon credits market has shown prominence in the last couple of years and is predicted to showcase healthy growth during the forecast period.

MARKET DRIVERS

The growing acceptance of carbon offsets by voluntary players is driving the carbon credits market.

The involvement of voluntary players such as private investors, governments, non-governmental organizations, and businesses is important for the market participants to set net-zero goals under a framework like the Science Based Targets Initiative (SBTi). Moreover, the supply of carbon credit originates from three major sources, including independent standards run by non-governmental bodies such as Gold Standard and Verra, international crediting mechanisms such as the Paris Agreement, and domestic crediting mechanisms instituted by governments such as the California Compliance Offset Program.

The growth of the carbon credits market is also fuelled by the compulsory requirement for companies or bodies to follow special regulations or standards and independent contribution by the final-user sectors to reduce carbon emissions and greenhouse gases.

MARKET RESTRAINTS

The increasing accusations and cases of greenwashing by companies restrict the growth rate of the carbon credits market.

This can be attributed to the growing international and domestic pressure for decarbonisation which led to corporate practices dubbed as sustainable without providing related evidence. Moreover, as per a study, organizations buy these offsets to prevent them from making real efforts to lower their emissions and decarbonize. Also, on the whole, market players with sustainability projects in position yearly decreased discharges by about 5 percent only. The shortage of high-quality carbon credits is another notable factor hindering the carbon credits market growth.

MARKET OPPORTUNITIES

The surge in financial assistance to native communities is expected to create more opportunities for the carbon credits market.

Moreover, the industry has considerable prospects for the agricultural and agri-food sectors to accelerate their participation in climate change mitigation while producing new sources of income. In addition, this market has significant chances for higher penetration in African countries and other emerging economies. The World Bank declared grand and long-term plans for developing high-integrity global carbon markets which will benefit 15 countries. Chile, Costa Rica, Ghana, Cote d’Ivoire, Democratic Republic of Congo, Dominican Republic, Madagascar, Fiji, Guatemala, Indonesia, Lao PDR, Mozambique, Vietnam, Republic of Congo, and Nepal are all included in its Forest Carbon Partnership Facility (FCPF).

MARKET CHALLENGES

Rising concern about the potential reputational risks and declining trade of credits are key challenges in front of the carbon credits market.

Multiple studies have highlighted the deep-rooted issues with credits realized from natural-based projects. The examination discovered that over 90 per cent of the forestry credits by non-governmental entities did not portray real emissions reductions. Forestry programs considerably exaggerated and overvalued their protection against deforestation. These problems have been present for a long time about integrity. However, recent studies were published at this very time when corporates are especially conscious of major reputational dangers over net-zero strategies. For instance, in May 2023, a class-action legal case was registered against Delta Air Lines in California over the contention that it twisted and falsified itself as a carbon neutral based on problematic carbon offsets.

REPORT COVERAGE

SEGMENTAL ANALYSIS

Global Carbon Credits Market Analysis By Type

The voluntary segment leads this category and is currently gaining more traction from several governments worldwide. Greater global collaboration and commitments by companies to meet emission goals are driving the segment’s market share. Furthermore, the three latest developments comprising alignment of independent credit standards, recommended direction by the Commodities Futures Trading Commission for voluntary carbon credit derivative contracts listed on designated contract markets (DCMs) and higher government involvement in the voluntary segment will further boost the carbon credits market size. Likewise, in May 2024, the US Secretary of the Treasury, Department of Agriculture, Department of Energy and other senior advisors released the joint announcement of policy and new Principles for Responsible Participation in Voluntary Carbon Markets (VCMs).

Global Carbon Credits Market Analysis By Project Type

The avoidance or reduction projects segment captured a greater market share of carbon credits in 2023 and is believed to expand further during the forecast period. Considering the ongoing attitude of prominent countries and regions towards climate change, carbon and other greenhouse gas discharge, the intensity of efforts and measures for the same will increase in coming years. Apart from this, the segment gained further importance with the launch of the Carbon Border Adjustment Mechanism (CBAM) by the European Union in October 2023. Under this, it will charge a carbon tax on imported goods.

Global Carbon Credits Market Analysis By End-User

The renewable energy segment is rapidly propelling forward to hold the biggest portion of the carbon credits market size. As the world is swiftly transitioning into clean sustainable energy, the segment’s market share is influenced by the enormous potential and influx of private capital in purchasing renewable energy producers. These are progressively preferring equity-based take-private transactions for leveraged takeovers because of the elevated interest rates and increasing power demand.

REGIONAL MARKET

Europe is the biggest segment with the maximum share of carbon credits market. Despite the recent fall in prices, the European Union carbon industry is expected to expand significantly in the future due to its environmental policy and guidelines and substantial rise in financial support for sustainability programs. For instance, in June 2024, UBS Asset Management announced an exchange-traded commodity (ETC) offering physical exposure to EU carbon emissions allowances. However, the steep price drop indicates a shift in a market that was predicted by several to proceed with its post-COVID trajectory and pattern higher throughout the decade.

The Asia-Pacific carbon credits market is the fastest-growing regional segment and is estimated to capture a significant share of the global market during the forecast period. This is because of India’s recent advancements in its existing policy in early 2024, Singapore inked a carbon credit contract with Ghana in May 2024, and Japan’s Tokyo Stock Exchange objective to revive its far behind carbon credit industry by the easy process for key players with high emissions to contribute commencing in November 2024.  These are some of the latest developments that occurred in the region elevating the APAC’s market size. China and South Korea are also quickly expanding in this domain.

The North American carbon credits market is steadily moving forward owing to the growing adoption of carbon pricing systems and increasing demand for corporate sustainability measures. Both factors are supported by encouraging government programs. Besides this, the growing emphasis on nature-based projects consisting of afforestation, reforestation and sustainable land management solutions. Similarly, in June 2024, Canada signed the second carbon credit offtake contract for the acquisition of up to 200 thousand credits annually over 15 years with a total value of 10.9 billion dollars for a public investment vehicle.

Additionally, Latin America is the source of the 20 percent of overall carbon credits being formed.

KEY PARTICIPANTS IN THE GLOBAL CARBON CREDITS MARKET

Companies playing a major role in the global carbon credits market include South Pole Group (Switzerland), Natureoffice GmbH (Germany), 3Degrees (US), Climate Partner GmbH (Germany), Finite Carbon (US), Climate Trade (US), EKI Energy Services Ltd. (India), ForestCarbon (UK), NativeEnergy (US), Moss  Earth (Brazil), CarbonBetter (US), Bluesource LLC (US), Carbon Care Asia Limited (China), TEM (Tasman Environmental Markets) (Australia), Terrapass (US), Climate Impact Partners (US), Climetrek Ltd. (US), Carbonfund (US), Carbon Credit Capital (US) and Climeco LLC (US).

RECENT HAPPENINGS IN THE GLOBAL MARKET

• In June 2024, Microsoft bought 8 million carbon credits from the reforestation strategy of the BTG Pactual Timberland Investment Group (TIG). This is the biggest deal to date regarding carbon dioxide removal. This is associated with Latin America's 1 billion dollars restoration and reforestation strategy.
• In February 2024, India amended its carbon credit trading scheme for voluntary players. This provides non-obligated companies to join and contribute to the tradable carbon credits industry. Also, the revision launched an offset mechanism which lets these players register projects or initiates and secure tradable carbon credit certificates (CCCs).

DETAILED SEGMENTATION OF THE GLOBAL CARBON CREDITS MARKET INCLUDED IN THIS REPORT

This research report on the global carbon credits market has been segmented and sub-segmented based on type, project type, end-user and region.

By Type

• Compliance
• Voluntary

By Project Type

• Avoidance/Reduction Projects
• Removal/Sequestration Projects
  • Nature-based
  • Technology-based

By End-user

• Renewable Energy
• Forestry and Land
• Industrial
• Household and Appliances
• Transportation
• Others

By Region

• North America
• Europe
• Asia-Pacific
• Latin America
• Middle East and Africa