Carbon Market Trends for 2025
It’s been another busy year in the voluntary carbon market (VCM). 2024 saw a parade of significant changes, from the first corporates making Carbon Integrity Platinum Claims through VCMI; to the Science-Based Targets initiative (SBTi) flip-flopping on whether corporates can use carbon credits to reduce Scope 3 emissions; to the Integrity Council for the Voluntary Carbon Market (ICVCM) approving the first carbon project categories for its Core Carbon Principles (CCP) label. This year was marked by recent international cooperation on carbon credit trading at COP29 and even the U.S. federal government voicing its support for increasing VCM integrity. Together, 2024’s developments reflect a consensus among governing bodies and standard setters that carbon markets are a key tool for meeting our climate goals, and that the VCM deserves further collaborative efforts to continue strengthening participation and integrity.
2025 promises to build upon this movement towards increased trust, quality, and organization. The Climate Trust team will be watching the following carbon market trends closely in the new year:
ICVCM’s Core Carbon Principles (CCP)
With its CCPs, the ICVCM has established a universal benchmark for ensuring high-quality carbon credits represent real, additional, and verifiable action. The first CCP-approved labeled carbon credits in the market are trading at a small premium, yet an appreciable surge in demand remains to be seen. In 2025, it is likely that the ICVCM will issue more CCP labeled carbon credits.
The Science-Based Targets initiative (SBTi)
At some point next year, SBTi plans to publish a final version of its Corporate Net-Zero Standard which will detail whether and how corporates can use carbon credits to meet their climate targets (1). Until then, SBTi-following companies will be operating without guidance but will hopefully choose to not wait for clarity from SBTi before taking climate-positive action in the VCM.
Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)
The first phase of CORSIA, a compliance scheme for reducing emissions in the international aviation industry, will enter its second year in 2025. Airlines flying between nations that participate in CORSIA will need to offset emissions that exceed a set baseline by procuring carbon credits that have been deemed eligible for the scheme. While questions remain about which registries and methodologies will be approved to provide credits, and how nations will account for these credits relative to their Nationally Determined Contributions, CORSIA will have a strong influence on supply and demand in carbon markets
Article 6
At this year’s UN Climate Change Conference in November, the Conference of the Parties agreed on the rules to establish a UN-backed global carbon market for facilitating carbon credit trading, as allowed for under Article 6 of the Paris Agreement. It will take time for these new mechanisms to take shape and show their full potential, but these developments provide new certainty and predictability for buyers in the VCM. Companies can reduce complexity and the risk of their purchased credits being nationalized or expropriated by choosing to buy credits from projects in the nation(s) where they do business, known as jurisdictional matching. As for how the VCM, its existing registries, and the UN-backed market will coexist, we can expect a convergence; registries are already prepared to integrate Letters of Authorization to distinguish between credits used for voluntary purposes versus Nationally Determined Contributions.
Carbon Border Adjustments
An emerging trade policy approach to watch in 2025 is the carbon border adjustment (CBA). By applying fees to imported goods based on their embodied carbon, carbon border adjustments can deter production shifting from nations with strong greenhouse gas emission regulations to nations with weaker ones. Depending on their design, these mechanisms could increase demand for carbon credits. So far, the EU is the only jurisdiction with a CBA, but interest elsewhere is growing; in the U.S., at least five carbon border adjustment proposals have been introduced so far in the 118th Congress, while other OECD nations like Canada, Australia, and the UK are also considering similar policies (2).
Legal Nature of Voluntary Carbon Credits
Another developing area of carbon markets that could enhance demand involves the legal nature of voluntary carbon credits. Two intergovernmental organizations, The International Institute for the Unification of Private Law (UNIDROIT) and The United Nations Commission on International Trade Law (UNCITRAL), are pushing to create norms for how to treat carbon credits under private law. Their work program mandate extends through 2025, and by identifying enforceable property rights for carbon credits, it has the potential to help buyers better understand and navigate the VCM like other markets (3).
Broader corporate activation
Given the shifts in regulatory and voluntary landscapes, as well as the increasing proximity of milestone dates, it is likely that 2025 will bring another year of wider participation in the VCM by corporations. Corporations that have set climate action targets for 2030 will be one calendar year closer to that promised time, and they face a strong incentive to act sooner rather than later. Buyers in the VCM have more capacity and knowledge than ever, reflected by companies seeking to understand individual projects and make forward purchases of high-quality credits. As the regulatory landscape continues to shift, companies may also enter the market to hedge against potential futures in which new cap and trade schemes, carbon taxes, and other compliance approaches allow for some offsetting with credits. New, unpredictable sources of corporate demand emerging for specific types of credits may create volatility for suppliers. When it comes to broader corporate activation in the VCM, the road may be bumpy, and the timing uncertain, but the direction of travel will be forward.