Carbon Credit Market: Poised for Growth by 2030
The carbon credit market, with an estimated value at around US$1.4bn by 2024, has been experiencing stagnation for the last few years. Often considered a straightforward path for companies to reduce their carbon footprint, this market hasn't quite met its initial growth expectations.
However, changes are on the horizon, according to US-based MSCI. A report it published at the beginning of 2025 indicates that the carbon market might see substantial growth within the next few years.
- Renewable energy credits (RECs): These credits are generated from renewable energy projects like wind, solar, hydroelectric or biomass. They represent the reduction of greenhouse gas (GHG) emissions by replacing fossil fuel-based energy generation.
- Energy efficiency credits: These credits are earned by implementing initiatives to improve energy efficiency.
- Credits from carbon capture technologies: These credits are earned through engineering solutions, such as injecting CO2 into underground geological formations.
- Afforestation and reforestation projects: These projects involve planting new forests (afforestation) or restoring existing forests (reforestation).
- Agricultural carbon projects: These projects embrace sustainable practices to enhance soil carbon sequestration.
It predicts a resurgence fuelled by increasing corporate climate commitments and evolving market mechanisms, suggesting that by 2030, the sector could witness significant growth.
The pathway for carbon credits isn't smooth sailing, though, with challenges such as pricing, integrity, and demand influencing its trajectory.
The current state of the carbon market
"Carbon credits have come a long way since their inception in the late 1980s. From early offset programs to today's dynamic voluntary markets, the path has been shaped by pivotal milestones like the Kyoto Protocol, the EU Emissions Trading Scheme, and the Paris Agreement," says Jeremy Davis, Executive Director at MSCI.
Yet, despite its historic growth, the carbon credit market remains lackluster currently. The volume of credits retired—meaning carbon credits used to offset emissions—has not increased, persisting at 180 MtCO₂e for the third consecutive year in 2024.
This plateau is concerning, especially after significant growth up until 2022. The market has struggled to maintain momentum even with efforts to increase its credibility.
Adopting climate targets validated by initiatives like the Science Based Targets initiative (SBTi) saw a 65% rise in 2024 with over 2,700 companies participating.
Despite such measures, demands haven't risen as expected due to negative press surrounding the quality of some carbon projects and a lack of urgency from corporations with distant climate goals.
Signs of life in the global carbon market
While current conditions in the market might seem disappointing, future projections indicate potential for growth. MSCI believes the market could be valued between US$7bn and US$35bn by 2030 and could escalate up to US$250bn by 2050.
This growth is expected to be driven by high-quality credits, especially removal credits that involve direct carbon extraction from the atmosphere. These removal credits, which dominated the market's value in 2024, are likely to include both nature-based solutions like reforestation and technological solutions such as direct air capture (DAC).
"In recent years, a rapid rise in corporate commitments to net-zero and carbon neutrality has fueled greater demand for innovative solutions in the carbon credit market," Jeremy adds. New regulations, like the Core Carbon Principles (CCPs) introduced by the Integrity Council for the Voluntary Carbon Market, aim to standardize and enhance carbon credit credibility.
Why might demand increase in the carbon market?
Aside from corporate initiatives, new demand avenues are emerging. Industries such as aviation are gearing up for the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), set to start in 2027. Such measures are expected to draw more buyers to the market.
The future growth of this market, however, hinges on the perceived quality of credits, with removal and engineered solutions likely to command higher prices.
Guy Turner, one of the authors of MSCI's report, notes, "As carbon markets gain popularity, more organisations become carbon-curious, potentially causing a snowball effect as more companies get involved."
What are the long-term prospects for the carbon market?
By 2050, MSCI predicts that engineered solutions such as DAC could play significant roles, with removal credits possibly comprising two-thirds of the market’s value. Although these technologies are currently expensive and not widely used, they could become substantial contributors to market value.
The anticipated growth appears ambitious, yet the financial ramifications for corporations are expected to be manageable. With the carbon credit market potentially accounting for less than 1.5% of global corporate profits by 2050, this suggests companies could incorporate these costs into broader sustainability strategies effectively.
"Carbon markets can play a hugely important role in tackling climate change," Guy explains. "They allow governments and corporates to reduce emissions at a lower cost, achieving more effective emission reductions."
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