Finance & Investment

Demand Strong, Value Increasing as VCM Comes of Age

While 2024 had the lowest transaction volume since 2018, the market’s value is 1.9x higher — showing steady demand amid broader market volatility and pressure.

Published 1 month ago | About a 5 minute read

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New research from Ecosystem Marketplace (EM) — an initiative of the non-profit Forest Trends that offers a global source of information on environmental finance, markets and payments for ecosystem services — shows a new phase for the voluntary carbon market (VCM), shaped by a greater focus on quality and integrity and lower levels of market liquidity, as measured in carbon credit volumes traded.

The report finds that though transaction volumes fell by 25 percent in 2024, credit prices declined by only 5.5 percent and credit retirements (credits are retired once the carbon benefit they represent has been claimed by the entity that bought them, to prevent double counting) held steady — indicating that underlying demand remains resilient even amid broader market pressures.

Building trust, credibility

The past few years have been rocky for the VCM — after being built by four independent registries and thousands of independent project developers left to self-regulate, its efficacy and credibility were called into question after carbon offsetting became a cornerstone of many corporate climate-action plans, and several well-known offset verifiers’ standards came under the microscope in 2023. EM analysts say the market is undergoing a significant supply-side reboot in response to increasingly sophisticated buyers demanding project transparency and quality.

The evolution of the VCM is not without its challenges, as policy and integrity frameworks developed in recent years will take time to operationalize. Still, these developments are widely viewed as positive steps toward a more credible and higher-quality marketplace.

“We’re seeing a winding down of a legacy market from older methodologies, and the scaling up of a new phase of the VCM,” says Charlotte Barber, Forest Trends’ Associate Director of the Ecosystem Marketplace. “While supply from new project types takes time to ramp up to meet the needs and demand of this new phase, end-user demand is staying steady — with credit retirements holding steady and increasing demand for some trusted project types.”

Other key findings from the report include:

The volume of credits retired (an indicator of end-user demand) from the 10 largest standards has plateaued at an elevated level since 2021, with 182 million tons of credits retired in 2024.
2024 posted the lowest transaction volume since 2018, but market value is 1.9x higher than 2018 — on the strength of relatively buoyant credit prices.
On average, credits representing emissions removals (which come from actions that remove greenhouse gases from the atmosphere and store them, such as through reforestation projects or direct air capture) were 381 percent more expensive than those for emissions reduction (which prevent or reduce emissions compared to the status quo, including projects that improve fuel efficiency or protect forests at risk of destruction) in 2024 — up from 245 percent in 2023.
Buyer preference for credits from recent vintages (referring to the period in which the carbon avoidance or removal occurred) reached unprecedented levels. There was a 217 percent premium for credits with vintage from the last five years, compared to a 53 percent premium in 2023.
While the effect of the Integrity Council for the Voluntary Carbon Market (ICVCM)’s Core Carbon Principles (CCPs) on the market was relatively minimal — since ICVCM only approved a small number of project types in 2024, and the effect on transaction volume was isolated to project types with existing supply in 2024 — the CCPs are beginning to affect market demand. In market segments where CCP-approved credits were available to buyers, transaction volumes and prices were markedly higher:
- Waste-disposal transactions grew over 3x, driven by demand for CCP-approved Landfill Gas credits — the average price of which increased by 35 percent from the first half of the year to the second half of the year (following ICVCM approval), with 3.1M credits traded.

“Long have reports on the death of carbon markets been exaggerated. This is a market that goes through lots of ups and downs; we have seen our share of cycles of rapid growth, decline, rapid growth. This year is a down year. But for those who are paying attention, that decline is only around the ‘loosely rational exuberance’ that surrounds this market,” says Ricardo Bayon, Partner and Co-founder of Encourage Capital. “The underlying fundamental indicator of demand, the retirements, continue to grow. So, the market continues to grow; and I believe it will once again boom when issues of trust and integrity are dealt with — and they are being dealt with.”

“There is certainly a shortage of the types of higher-integrity credits that companies are increasingly demanding, and this is one of the key contributors to lower trading volumes. We expect to see significant increases in volumes traded as forest countries bring these to market and sign agreements with Emergent and other buyers,” says Eron Bloomgarden, CEO of Emergent — whose LEAF Coalition aims to halt tropical deforestation by financing large-scale protection projects by 2030. “But high-integrity supply alone will not scale the market to where we need to be to tackle the climate crisis. More work is still needed on the demand side — working with companies to build stronger business cases, and standard setters to ensure they send a clearer signal that compensation for emissions via removals and reductions is vital for the millions of tonnes of carbon companies will continue to emit as they progress towards net zero.”