Carbon Credit Market Size, Share, Growth, Trends 2024 to 2033

Carbon Credit Market Size and Growth 2024 to 2033

The global carbon credit market size was valued at USD 470.11 billion in 2023 and is expected to be worth around USD 13,321.67 billion by 2033, growing at a compound annual growth rate (CAGR) of 39.71% from 2024 to 2033.

A carbon credit is an allowance that lets its holder emit one metric ton of carbon dioxide or the equivalent of other greenhouse gases. Credits are used in cap-and-trade systems aimed at reducing overall emissions. Such a system allows organizations to buy and sell credits, which creates a financial incentive to reduce greenhouse gas emissions. Carbon credits are a central tool in efforts to combat global climate change by stimulating investment in cleaner technologies and practices, which aligns with the transition toward a more sustainable and environmentally friendly economy.

Report Highlights

• Europe region has dominant position in the market and accounted revenue share of 89.10% in 2023.
• By type, the compliance segment has generated revenue share of 97.40% in 2023.
• By end user, the power segment has accounted revenue share of 22.60% in 2023.

Carbon Credit Market Growth Factors

• Framework regulation: Detailed regulatory frameworks will be the other growth drivers in carbon credits. Policies on cutting greenhouse emissions are still under development at various levels of government worldwide. In addition to laying down reduction measures, the policies also provided an outline for carbon trades so that structured area carbon credits can thrive and where predictability inspires businesses to commit to carbon credit by becoming part of any company's compliance strategy.
• Technological development: Actually, carbon credit markets have changed in the measurement, reporting, and verification of reductions in emissions due to technological advancement to be more precise and effective. In addition, tracking of carbon is easier by satellites, where carbon can be followed with blockchain in terms of transaction verification, and carbon capture and storage technology make carbon credit tracing easier. This technological advancement enhances market openness and investor confidence through the expansion of participation in carbon credit trading.
• Worldwide accords: One of the agreements that promote worldwide cooperation and speed up climate change schemes is the Paris Agreement. It binds nations to set special, ambitious reduction targets and puts up frameworks for carbon trading. As the country sets up specific goals for themselves, there will be increased demand for carbon credits that help meet those targets, hence increasing the volume and amount of trades in the market.

Carbon Credit Market Trends

• Decentralization: The growing application of decentralized exchanges and carbon credit trading based on decentralized market infrastructures such as blockchain has promoted carbon credit trading on platforms other than centralized carbon markets. The decentralization feature does indeed enhance higher degrees of transactional transparency and security along with efficiency so that new, smaller-sized participants enter the market space. Apart from democratization in carbon trading, furthering such trends in carbon trade fosters project diversity- more diversity is innovation, and certainly enhances competitiveness in the entire marketplace.
• Nature-Based Solutions: Increasing attention is being focused on NbS as an emerging player in the landscape of carbon credits. In this solution, the essence is that it harnesses natural processes to capture more carbon, for example by reforestation and restoring wetlands. There's a co-benefit on why people get attracted towards NbS. The attraction lies in the fact that these projects save biodiversity besides fighting climate change. With its co-benefit gaining traction with public and private enterprises, nature-based carbon investment will probably see a trend increase.
• Social Equity: There is growing attention on social equity in the carbon credit market. Increasingly, stakeholders are advocating projects that bring benefits to the local communities and address issues of environmental justice. This is a significant trend, which brings out the fact that carbon credit initiatives should be relevant not only for emission reductions but also for livelihood support and the rights of marginalized people. It would be very critical if such carbon credit projects are aligned with environmental and social objectives for their long-term sustainability.

Report Scope

Carbon Credit Market Dynamics

Drivers

• Corporate Demand: Growing corporate concerns about sustainability and reduced carbon footprint are raising its demand for carbon credits. Companies have set very aggressive objectives in the environment, society, and governance area, including offsetting all or part of their emissions through carbon credits. Such a demand enriches a new market landscape by incorporating fresh carbon credit projects aside from the market growth that establishes them.
• Investor Interest: Institutional and retail investors would look for more opportunities that would suit their values and long-term objectives such as environmental sustainability. All this attracted capital supports the projects presented in the market, and stimulates innovation towards new carbon credit initiatives thus driving market growth.
• Partnerships and Collaborations: The carbon credit market heavily depends on strategic partnering among private entities, non-profits, and government agencies. Pooling resources and networks of collaborators allows the development of carbon credit projects. This brings in more credibility, along with more people and organizations' investment in such projects. The overall outcome is a better carbon credit market.

Restraints

• Regulatory Uncertainty: One of the chief limitations of the carbon credit market is regulatory uncertainty. Policies are changing, and the approaches in different jurisdictions may be divergent; hence, investors and project developers will be confused. Hesitation in long-term commitments or investing in carbon credit initiatives may hold up the growth of the market and innovation.
• Market Volatility: Sharp price volatility in the carbon credit market is a source of concern for many reasons including regulatory changes, the supply and demand scenario, and general economic conditions. Such volatility scares potential investors and confuses business entities in sustainability planning. Stabilizing the market is important to encourage broader participation and long-term investments.
• Resource constraints: Carbon credit projects usually are resource-constrained, particularly in terms of financial resources, technical skills, and human resources. The cost of developing successful projects usually is high in terms of upfront investment and continued operational expense. When the resources available are limited, the development of the project can be severely restricted, thereby limiting credit availability, thus affecting growth and access in the marketplace.

Challenges

• Building Credibility: The largest challenge for the carbon credit market is to establish credibility and to ensure it lasts. Trust among the players is required for real and measurable cuts in emissions through carbon credits. Thus, fraud and inefficiency could be the source of confidence for participants in the market. It will deter corporations and investors from participating in the market.
• Measurement and Monitoring: The calculation and correct monitoring of reductions in emissions remain a sophisticated challenge. The usability of carbon credit projects relies entirely on collecting and analyzing proper data. Since, without uniform methodologies and verification procedures, the reported outcomes vary significantly, which breaks the integrity of the carbon credit market and establishes barriers for potential investors.
• Balancing Supply and Demand: The biggest persistent challenge is getting the supply and demand balance in the carbon credit market. High supply will push credit prices down, thus weakening the incentive for new projects. On the other hand, a credit shortage will push prices up and create spikes, which make it difficult for companies to meet their compliance obligations. Thus, achieving equilibrium is fundamental to the stability and sustainability of the market.

Carbon Credit Market Segment Analysis

Type Analysis

Based on type, the carbon credit market is segmented into voluntary carbon credits and compliance carbon credits.

Voluntary carbon credits: The carbon credits are purchased voluntarily by those individuals, businesses, or organizations who desire voluntary carbon offsets for the released carbon. In such markets, there is legal scope to allow participants in these carbon-reducing projects. Here, the companies will have these credits for enhanced sustainable credentials, reaching more consumers who care about the environment as well as preparing the corporations for regulatory changes later down the road. Projects that are supported by these credits include forestation, wind and solar farms, and small-scale community-based projects. These are usually associated with corporate social responsibility goals as well as environmental stewardship.

Carbon Credit Market Revenue Share, By Type, 2023 (%)

Compliance Carbon Credits: It is governed under governmental frameworks that require certain units to meet the required set of emissions reduction targets. Compliance carbon credits are primarily part of cap-and-trade systems, where regulatory authority caps the total amount of greenhouse gas emissions and then delegates allowances or credits to contributors. The organizations have to hold enough credits to back their emissions, and over their limits, they need to either buy more credits or face penalties. This mechanism of the market encourages other reductions in emissions through the selling of excess credits to companies that need them to those who have reduced their emissions below their allocated cap. Compliance credits, therefore, play a central role in meeting national and international climate goals.

Project Types Analysis

Based on project type, the the carbon credit market is segmented into forestry projects, renewable energy projects, and energy efficiency projects.

Forestry Projects: They are viewed as essential in the carbon credit industry. They are predominantly concerned with reforestation, afforestation, and the conservation of forests. All these projects play a very significant role in sequestering carbon dioxide from the atmosphere since trees naturally absorb CO2 during photosynthesis. Reforestation refers to replanting trees in areas where they had previously been cleared. Afforestation refers to planting trees in regions that were never covered with forests. Another conservation project is through forest protection, which also aims at conserving remaining forests so that they are not degraded further and become carbon sinks. Better livelihoods and the preservation of biodiversity could be further advantages.

Renewable energy projects: These also constitute another massive segment of the carbon credit industry whereby energy is generated from renewable energy sources such as wind, sun, and hydropower. Such projects once again bring about more emission reduction of greenhouse gases since in this case, also fossil fuel substitution is responsible for those emissions, hence it would be helpful in the proper production of clean energy. For example, sunlight is tapped to produce electricity in solar farms, while wind energy is converted into power through wind turbines. These projects give carbon credits directly due to the emission cut-off, and indirectly from energy security and sustainability influence. Local economies are increased together with generating local employment upon investment in renewable energy making it a more attractive spot for carbon offset projects.

Energy Efficiency Projects: These reduce energy consumption and emissions by replacing equipment, improving building insulation, or enhancing industrial processes. The consumption of energy is reduced with energy efficiency projects while more energy is conserved since energy is used efficiently. It decreases dependency on fossil fuels and emissions of greenhouse gases. The savings for firms and households from using energy-saving technologies will be significant. This provides a good incentive to generate carbon credits. In addition, these projects contribute to supporting sustainable practices and new technology that align with more international environmental targets.

By Regulatory Framework

Based on regulatory framework, the the carbon credit market is segmented into cap-and-trade system end and offsets & credits. 

Cap-and-Trade System End: It is a regulatory system under which total emissions allowed in a given jurisdiction are capped so that the greenhouse gases generated do not exceed the total levels of emissions allowed within such jurisdiction. Under such a system, governments allocate limited quantities of emissions allowances or credits to the participating entities who would buy or sell credits as necessary. This gives businesses a financial reason to reduce their emissions. The businesses that are over the cap must purchase additional credits from those that have reduced their emissions below their allowance. This is driven by the market and rewards innovation and efficiency by allowing the lowest-cost reductions in emissions to occur.

Offsets and Credits: These refer to systems that allow projects to generate carbon credits, which can be bought and sold independently of the requirements of compliance. Consequently, most projects are conducted out of the compliance markets and can be done at a choice. In return, an organization will be credited with an equivalent amount of the CO2 it has reduced in its emission profile when it invests in a project that will reduce emissions—that is, the installation of renewable energy or a reforestation project. These credits can be bought and sold to other entities with a desire to limit the net emissions they may or may not generate through industrial activities. This would thus encourage a wide variety of projects and foster a compliance-buyer market, a combination that would further strengthen investments in sustainable initiatives.

Carbon Credit Market Regional Analysis

The carbon credit market is segmented into several key regions: North America, Europe, Asia-Pacific, and LAMEA (Latin America, Middle East, and Africa). Here’s an in-depth look at each region

North America Carbon Credit Market Trends

The United States and Canada are the largest players in the carbon credit market of North America. Regional carbon trading programs in the United States include the California Cap-and-Trade Program and a few Northeastern states involved in the Regional Greenhouse Gas Initiative. These regional carbon trading programs cap greenhouse gases and allow businesses to buy and sell allowances for compliance. The carbon pricing scheme adopted by Canada for its federations requires every province to establish its system. A rising demand in both nations for carbon credits is recorded because of increasing participation by more corporations, aligned with these corporations' sustainable goals.

Why is Europe biggest region for carbon credit market?

Europe's most developed and operational carbon credit market is due mainly to the European Union Emissions Trading System, which is the world's biggest carbon trading mechanism. It encompasses everything from power generation and heavy industry to binding, unavoidable reduction targets of emissions for its member states. For instance, the key countries involved are Germany, France, and the UK, as they are major players in renewable energy and carbon offset projects. Commitment by the EU to reach a posture of climate neutrality by 2050 further heightens the significance of carbon credits in this region and results in innovation in carbon accounting and trading mechanisms.

Asia-Pacific Carbon Credit Market Trends

China, Japan, and Australia are also taking positions in the carbon credit market. The national carbon trading scheme currently undertaken in China started with the power sector and is soon going to expand further into other sectors. Japan has pledged itself to achieve carbon neutrality by 2050. Programs on voluntary carbon markets where companies can offset their emissions through various projects have begun following such a commitment. A carbon credit market is booming in Australia through its Emissions Reduction Fund which encourages projects to reduce emissions. Awareness in the region about climate change is creating more participation and investment in carbon markets.

LAMEA Carbon Credit Market Trends

The LAMEA region has a fair amount of opportunities and challenges in the carbon credit market. Countries such as Brazil and Chile are doing a remarkable job in Latin America. Brazil focuses on forest preservation and reforestation projects, whereas Chile is slowly moving forward with renewable source initiatives that offset carbon output. The Middle East has carbon capture technologies and investment in renewable energy through developing the carbon market. African nations include South Africa and Kenya, which undertake carbon credit projects relating to sustainable agriculture as well as renewable energy, and the challenges are that these regulatory frames are not as developed; funding opportunities to aid growth in the carbon credit market have been minimal. 

Carbon Credit Market Top Companies

• Verra
• Gold Standard 
• Carbon Trust 
• Climeworks 
• Carbon Clean Solutions
• NativeEnergy 
• Ecologi
• South Pole
• Verde Impact
• Pachama 
• EcoAct

The carbon credit industry has a considerable influence from major players such as Verra, Verde Impact, Pachama, and EcoAct among many others. They take advantage of their skills in carbon accounting, project development, and market mechanisms to build and operate carbon credits. With the application of various technologies, such as remote sensing and blockchain, they develop and improve the processes and mechanisms for transparency and verification to validate the legitimacy of carbon credits. They work on various projects, reforestation, renewable energy, and sustainable agriculture among others that promote innovation and increase market capacity to satisfy the increasing demand for carbon offsets. Many of the organizations also collaborate with governments, NGOs, and corporations in their quest to effectively address the needs of a sustainable future.

CEO Statements

Mandy Rambharos, CEO of Verra

• "At Verra, we believe that carbon credits are a powerful tool for driving investment in sustainable projects and facilitating measurable climate action. Our focus is on creating a robust framework that ensures the integrity and transparency of carbon markets. By enabling companies to offset their emissions through verified projects, we can accelerate the transition to a low-carbon economy and support global efforts to meet climate targets."

Diego Saez-Gil, CEO of Pachama

• "At Pachama, we believe carbon credits are vital for addressing climate change and restoring ecosystems. Using advanced technology and satellite data, we ensure each credit reflects genuine emissions reductions. Our mission is to connect businesses with high-quality reforestation and conservation projects, enabling them to offset their carbon footprints while promoting biodiversity and community engagement. Together, we can create a sustainable future and make a meaningful impact in the fight against climate change."

William Theisen, CEO of EcoAct

• "As CEO of EcoAct, I believe that carbon credits play a crucial role in combating climate change. They offer businesses a tangible way to offset emissions while supporting impactful environmental projects. By ensuring transparency and integrity in the carbon market, we empower organizations to contribute meaningfully to sustainability. Together, we can accelerate the transition to a low-carbon economy and build a more sustainable future for all."

Recent Developments

Recent partnerships and acquisitions within the carbon credit market, such as those involving companies like Pachama and EcoAct, are indeed indicative of high innovation and strategic cooperation at a rapid pace among main industry players- especially in bringing better indoor cycling experiences for customers. At the helm of this change are Pachama, EcoAct, Verra, and Verde Impact, each featuring performance analytics, real-time carbon tracking, and personal sustainability insights. These developments make consumers increasingly aware of what they are doing during the selling process and enhance the quality of the user experience while trying to promote a greener environment.

Some notable examples of key developments in the carbon credit industry include:

• In February 2024, Verde AgriTech Ltd and majority-owned Banco Santander's WayCarbon agreed on strategic cooperation to push the development and revenue building of Verde's carbon removal project using its potassium fertilizer K Forte. It was an effort by the company to exploit the potential of carbon capture using Enhanced Rock Weathering. WayCarbon brought expertise in developing, certifying, and marketing carbon credits. Using ten years of experience in carbon industries in Brazil since 2006 in carbon industries, said Cristiano Veloso, CEO of the firm, is likely to create one of the world's largest carbon removal platforms.
• In April 2024, Climate tech business Pachama convinced Shopify to buy carbon removal credits from a pioneering reforestation project in Brazil's Atlantic Forest, ravaged by catastrophic levels of deforestation. Working through Shopify's Sustainability Fund, that partnership restored close to 200 hectares and removed up to 45,000 tons of CO2e in a 17-year timeframe. Apart from sequestering carbon, the Águas da Mata Atlântica project also established an important wildlife corridor while improving water resources and jobs for the 9 million people in the surrounding region. The fact that Shopify was working with Mercado Libre to fund the restoration of the first 170 hectares further underscored the commitment to creative, superior nature-based climate solutions.
• In November 2023, Schneider Electric completed the acquisition of EcoAct SAS, the net zero and climate consultancy leader held an exclusive discussion with Paris-based Atos Group. The source of business strength Schneider Electric has acquired in sustainability will come from combining the Net Zero and Nature-Based offerings through the products of Ecoact. It provides consulting alongside tools for climate data services. This further advanced the entire AI-based digital technologies-driven sustainability solution and incorporated a whole portfolio of techniques for enabling enterprises through transformation into net zero.

Current happenings in the carbon credits market by companies such as Verra, Verde Impact, Pachama, and EcoAct are setting a bar for sustainability. This sets a new standard with greater visibility and methodology in measurements leading to a higher trust factor among the stakeholders. Through high technologies combined with a standards approach, they are shaping the landscape for carbon credits in ways that reflect much more effective assessments of impacts on the environment and further development of stronger ties between real carbon offset projects and the benefits of real carbon offset projects aligned with global climate goals.

Market Segmentation

By Type

• Voluntary
• Compliance

By Project Types 

• Forestry Projects
• Renewable Energy Projects
• Energy Efficiency Projects

By Regulatory Framework

• Cap-and-Trade System End 
• Offsets and Credits

By Source

• Technology Based
• Biomass
• Forest Based
• Sewage Treatment Plants
• Wastewater Treatment Plants

By Selling Platform

• Direct Contact
• Climate Exchange Platforms

By Business Size

• Small and Micro Enterprises
• Medium and Large Businesses

By End User

• Power
• Energy
• Aviation
• Transportation
• Buildings
• Industrial
• Others

By Region

• North America
• APAC
• Europe
• LAMEA