Carbon Credits Surge: $16B Fuels 2024’s Race for High-Quality Offsets
Carbon credits are increasingly essential for investors and businesses aiming to reduce emissions. According to Abatable’s latest report, the voluntary carbon market (VCM) is growing rapidly, attracting $16.3 billion in funding in 2024.
This is 18 times higher than the total value of credit retirements, highlighting a shift toward long-term commitments rather than short-term carbon offset purchases. Compared to previous years, this represents a significant rise, underscoring the increasing role of carbon markets in corporate sustainability strategies.
Governments, companies, and investors are under pressure to integrate climate action into their operations. The European Union’s Carbon Border Adjustment Mechanism (CBAM), which places a tariff on carbon-intensive imports, is expected to drive higher demand for trusted carbon credits.
As regulations evolve globally, businesses that adopt high-quality carbon credits early may gain a competitive advantage. Let’s learn why and the key trends shaping the market.
Net Zero’s Secret Weapon: Why Corporations are Doubling Down on Carbon Credits
Companies are the biggest buyers of carbon credits, using them to compensate for emissions they cannot yet eliminate. Many of these emissions fall under Scope 3 emissions, which come from supply chains, transportation, and other indirect sources. Addressing Scope 3 emissions is one of the most difficult challenges for businesses pursuing net-zero goals, making carbon credits a crucial tool.
Among the sectors leading this shift, the aviation industry is significantly increasing its reliance on carbon credits. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) could add demand for 135–182 million tons of credits by 2026. This is equal to 28-37% of the current voluntary market retirements.
This reflects airlines’ efforts to comply with stricter environmental standards while maintaining operations.
Major corporations are also making significant commitments. Microsoft has pledged to buy millions of tons of carbon removal credits as part of its long-term net-zero plan. Other companies, such as Google, Delta Air Lines, and Amazon, are investing in carbon credits to offset emissions from operations and supply chains. Amazon, for instance, is funding large-scale forest conservation projects to balance its growing carbon footprint.
Financial institutions are emerging as key players in the carbon market. Many banks and investment funds are creating carbon credit portfolios, viewing them as a new asset class with long-term growth potential.
According to Abatable’s report, institutional investors focusing on sustainability and environmental, social, and governance (ESG) investments are expected to increase their participation in the market.
The Shift to Carbon Removals
A major trend in 2024 is the increasing investment in carbon removal projects rather than avoidance-based credits. Investors prefer projects that remove CO₂ from the air, such as direct air capture (DAC) and afforestation, because they provide measurable and permanent carbon reductions.
Avoidance credits, such as forest conservation (REDD+), have faced pricing challenges. Older REDD+ credits have sold for lower prices, from $6.1 to $3.5 per ton due to concerns about their reliability.
However, newer REDD+ projects aligned with high-integrity standards are in higher demand. Investors are prioritizing credits that ensure long-term carbon storage rather than those that merely prevent emissions from increasing.
Another growing area is blue carbon credits, which come from coastal and marine ecosystems such as mangroves and seagrass. These environments store carbon at much higher rates than terrestrial forests and provide additional benefits like protecting biodiversity and supporting local communities.
For example, projects in Indonesia and Kenya are restoring degraded mangroves to generate blue carbon credits. Investors are increasingly interested in these projects due to their dual benefits of carbon sequestration and ecosystem restoration.
Ensuring Quality and Trust in the Market
The credibility of carbon credits is critical for their success. New international standards, such as the Core Carbon Principles (CCPs) from the Integrity Council for the Voluntary Carbon Market (IC-VCM), are improving market transparency.
- In 2024, 50% of all retired credits met high-quality standards, up from 29% in 2021, demonstrating a move toward more trustworthy offsets.
CORSIA-eligible credits are also gaining popularity, particularly among airlines looking to meet strict environmental regulations. As more industries adopt these high-quality standards, the voluntary carbon market is expected to become more reliable and impactful.
Technology is playing a key role in improving market integrity. Blockchain-based carbon credit tracking and digital measurement, reporting, and verification (dMRV) tools are reducing the risks of fraud and double counting. These innovations allow real-time tracking of carbon credits, giving investors greater confidence in their authenticity and impact.
What’s Next for Carbon Pricing?
Despite strong demand, carbon credit prices fell in 2024 due to an oversupply of older credits. However, removal credits, especially for afforestation and biochar, remained valuable. Biochar credits, for instance, traded between $200 and $1,200 per ton, reflecting their high demand and limited supply.
Experts predict that high-quality credits will continue to trade at premium prices, while lower-quality credits may struggle to find buyers.
Abatable’s report predicts growth in the voluntary carbon market. This growth is fueled by corporate sustainability goals and compliance tools such as CBAM and CORSIA. Stricter regulations are coming. Businesses investing in reliable, high-integrity credits will better meet their sustainability goals. This will help them keep public trust.
Financial tools for carbon credits are also evolving. Forward contracts, pre-financing agreements, and credit insurance are making investments in carbon credits more secure. These financial products help project developers raise capital and provide investors with more certainty about future returns.
Forward price curves for carbon credits remain higher than today’s spot market prices, per Abatable report:
- REDD+ and Cookstove Credits: Expected to be issued under improved methodologies, these credits are priced between $11-$15 per tonne in forward markets, compared to $3-$6 per tonne in the spot market.
- Other Credit Types: Future vintages (2025-2029) for wetlands, improved forest management, afforestation, and reforestation projects are priced above $20 per tonne, reflecting a premium over current spot prices.
- Stable Pricing: Forward price curves suggest modest, incremental price increases over time, indicating long-term stability in the carbon credit market.
The Future of Carbon Investing
The voluntary carbon market is undergoing rapid change, with investment playing a central role in shaping its future. Companies and investors are focusing on high-quality carbon removal projects, while new standards and technologies are improving market transparency.
As the market evolves, investors may find opportunities in emerging sectors, particularly those prioritizing projects producing high-integrity carbon removal credits. Blue carbon, direct air capture, and afforestation are poised to attract more funding in the coming years.
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