A string of investigations in 2023 exposed inflated impact claims by carbon credit developers and gaps in project design, eroding trust in voluntary carbon markets. At the same time, some of the most trusted initiatives to restore integrity and credibility to the sector failed to deliver clear guidance for how companies can best employ carbon credits alongside supply chain decarbonization.
This is one of a series of articles looking ahead to the trends, innovations, opportunities and challenges that will define the business of sustainability in 2024.
As a result, project developers downsized their ambitions and the market slowed down.
This leaves carbon buyers with a decision to make: Dive in, fix what’s broken, root out the shady providers and leverage the power of carbon markets to reduce net greenhouse gas emissions; or walk away from the complexities and uncertainties that plagued the sector throughout 2023.
Going into 2024, signals are emerging that carbon markets can still become effective mechanisms for coordinating global climate action. Governments, carbon registries and standards bodies have promised greater collaboration. Recent studies have signaled that companies using carbon credits are decarbonizing their own supply chains faster than those that don’t, turning a popular narrative of carbon markets as "permission to pollute" on its head.
Here are three trends to look for in 2024 that have the potential to restore confidence in carbon markets and set the stage for them to deliver on their climate promises:
Moving toward universal standards
Some of the most promising carbon market announcements at COP28 were agreements to rationalize and strengthen carbon markets. Six major registries, including Verra and Gold Standard, agreed to align on carbon accounting principles. Independent carbon market governance bodies, including the Science Based Targets initiative, Voluntary Carbon Markets Integrity Initiative and CDP, agreed to produce a cohesive carbon project quality standard from development through retirement.
These initiatives should make the market easier to navigate, unlocking buyers to purchase and retire credits with confidence. But so far the details are thin. In 2024, these bodies must make good on their announcements by delivering clear and actionable standards.
More government oversight
Greater government scrutiny of voluntary markets could provide a bedrock of confidence in carbon credit integrity for both buyers and project developers. One way to get there is through closer coordination between voluntary and compliance carbon credit initiatives.
Three prominent examples are unfolding. Singapore’s carbon tax will permit purchase of credits from third party registries beginning in January. The United States Commodity Futures Trading Commission announced this month the coming of proposed guidance for voluntary carbon credit derivatives. And while discussions stalled at COP28 around Article 6 of the Paris Agreement, which will establish a global carbon market for both private and public sector participants, Gold Standard is working with early-mover countries already building the policy frameworks necessary for the nascent market to grow.
If they’re successful, efforts to integrate voluntary and regulated carbon credit action such as these could stabilize demand, giving project developers and investors the confidence they need to scale supply.
New ways to unlock financing
Project developers need clear and consistent demand signals to attract early-stage capital and launch high-impact projects.
Carbon removal projects in particular face set-up costs up to 75 percent of the project’s lifetime cost. With uncertain demand, many developers turn to less expensive projects, such as forest conservation, and forgo higher cost carbon removal projects.
Coalitions such as LEAF and Frontier, alongside early offtake agreements, can provide reliable demand signals to unlock quality supply. More efforts such as these in 2024 would catalyze high-quality carbon credit supply for years to come.
Standard setters and governments can provide quality assurance to help reinject confidence into carbon markets next year, restoring their original purpose: to rapidly reduce global net emissions and close the climate finance gap. Ultimately, though, carbon buyers will decide how carbon credits fit into the global path to net zero. Until they do, and provide consistent demand signals, the market will continue to flounder.