The global carbon credit market could regain its momentum in 2025, according to MSCI’s data.
With the total market value projected to grow from $1.5 billion in 2024 to as much as $35 billion by 2030 and $200 billion by 2050, the report highlighted a potential turning point for this sector if climate commitments are delivered.
After years of scrutiny and consolidation, the voluntary carbon credit market is seeing steady improvement in credit quality and integrity, according to the report. Over the past two years, the proportion of retired credits with the lowest ratings (CCC) has dropped from 29% to 15%, while the use of higher-rated credits (A or AA) doubled from 6% to 12%. This shift reflects increasing demand for high-integrity carbon offset projects, particularly engineered and nature-based solutions that remove carbon dioxide from the atmosphere, the researchers added.
A recent MSCI Carbon Markets analysis of over 4,000 voluntary carbon projects revealed that nearly half (47%) of retired carbon credits up to July 2024 came from lower-rated projects (B or below), while only 8% were from A or AA-rated projects, and none achieved the top AAA rating. However, carbon-project integrity is improving. From Q2 2022 to Q2 2024, the share of retired credits with the lowest CCC rating dropped from 29% to 15%, while A or AA-rated credits doubled from 6% to 12%. New projects, especially those removing carbon dioxide, are showing higher integrity, supported by stricter standards like the Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles introduced in mid-2024.
The debut edition of Funds Europe’s Asset Manager’s Carbon Impact Research Report 2024 sheds light on the key trends shaping decarbonisation projects, carbon footprints, sustainable fund allocations, and the responsible investment strategies adopted by European asset management firms. Download the report here: https://funds-europe.com/carbon-impact-research-report/
A common criticism of the voluntary carbon market is that companies might buy carbon credits as a substitute for reducing their emissions. However, an MSCI analysis of 8,844 firms from 2017 to 2022 found that companies using carbon credits performed better on climate metrics than nonusers. These firms were more transparent in disclosing Scope 1, 2, and 3 emissions, more likely to set credible emissions-reduction targets, and reduced Scope 1 and 2 emissions at a median rate of 3.6% annually—more than double the 1.5% reduction rate of nonusers. According to the researchers, this suggests carbon credits are often part of broader climate strategies rather than a substitute for action.
Carbon markets have been cautious about using carbon credits for compliance, particularly since 2012 when the EU Emissions Trading Scheme stopped accepting international credits. Concerns include credit equivalence to emissions and a preference for local reductions. Despite this, some countries have embraced carbon credits with specific rules. Australia has included domestic credits in its emissions trading scheme for over a decade, South Africa allows offsets for up to 10% of its carbon tax, Colombia has permitted offsets for 50% of its carbon tax since 2022, and Singapore now allows credits for 5% of taxable emissions. The UK is considering similar measures, while the EU ETS may allow credits from carbon dioxide removal projects.
