The Voluntary Carbon Markets Quarterly: Key developments and market updates from last 12 months

To keep track of how the Voluntary Carbon Market is evolving, and to stay informed on the latest trends and themes, be sure to check-out our latest Voluntary Carbon Market quarterly.

Table of contents

  • Where are we today and what lies ahead? The Voluntary Carbon Market in 2022 at glance.
  • What external drivers are promoting and supporting market uptake? COP 27 and other Policy, Regulation, Voluntary Standard Setting.
  • How is the ecosystem innovating to capture relevant opportunities, and what use cases did we see in 2022? Institution developments, technology & innovation; Use cases and market integration examples.
  • Useful reports and publications, along with a list of sources / references used to inform this article.

Where are we today and what lies ahead?

Voluntary Carbon Market in 2022 at glance

The Voluntary Carbon Market (VCM) rapidly developed throughout 2021. However, 2022 saw a slightly different story unfold, with issuance and retirements of voluntary carbon credits slowing. The slowdown can be attributed to a range of factors including the challenging macroeconomic backdrop and a growing focus on quality and verification [1] [2]. 

While the average price of a Voluntary Carbon Credit (VCC) remained subordinate to that of an emission allowance in the EU (see Figure.1), the VCM did see price growth; prices climbed in 2021 by nearly 60% over 2020, reaching an annual global weighted average price per ton of $4.0 for all transactions, compared to $2.5 in 2020 [3].  

Figure 1: Average VCC price Vs EU emission allowance $




Source: Bloomberg; IIF

Going forward, prices are expected to trend upwards, as the demand for high-integrity VCCs (in sustainability strategies) is recognised more widely, and as governance mechanisms are put in place to build further credibility in the market. These drivers would enable the VCM to play a more tangible role in the decarbonisation of the global economy. For this, prices would need to converge with those under the regulated schemes which vary between $60-$100. This could happen as regulation of the VCM tightens and if laws allow for the interoperability of the compliance and voluntary markets.

Increased scrutiny around the use of carbon offsetting strategies was a major theme in 2022. Reputational concern proved a key risk, due to low quality VCCs i.e. those that don’t create real, additional and verifiable climate impact with high environmental and social integrity (as indicated by the Integrity Council for the Voluntary Carbon Market’s (ICVCM) draft Core Carbon Principles (CCPs) [4]), penetrating the market. This then amplified the fear that companies may be increasing reliance on offsets instead of prioritising direct emission reduction goals. Overall, this has made it clear that government policy on the role of VCM, industry collaboration, market standards and ultimately increased regulation – akin to that in financial markets – may be required. We also expect to see a significant degree of innovation in the coming years, to help provide tools and infrastructure for the VCM to develop. Work is already underway to set up and operationalise these measures. 

The VCM has been impacted by a number of drivers in recent years. There are tailwinds supporting market demand, but issues around VCC quality are certainly top of mind, prompting standard setters to accelerate the build out of more robust governance structures. With research continuing to point towards a need for offsetting over the longer term to meet decarbonisation objectives (see Figure.2), we’re closely monitoring how businesses are responding to these developments and drivers; noting that companies are increasingly considering innovative methods to integrate VCCs as part of their sustainability strategies.

Figure 2: Global CO2 emissions, gigatons (GtCO2) per year

Source: McKinsey & Company [5]

Market dynamics

Issuance of VCCs decreased by 21% in 2022 (279 Mt) compared to 2021 (354 Mt) and data on retirements suggests these were overall flat vs. 2021 (analysis from Shell & BCG [2] indicated a marginal increase from 2021, with insights from Climate Focus (Figure.3) (Figure.4) [1] suggesting a slight decline in 2022 to 156 Mt against 162 Mt in 2021. Discrepancies are likely due to slightly different raw data from the registries). 

Figure 3: Issuance Volumes

Source: Climate Focus: 2022 Overview Voluntary Carbon Market

Figure 4: Credit retirements

Source: Climate Focus: 2022 Overview Voluntary Carbon Market

Despite the decrease, issuances in 2022 were still 49% higher than those in 2020. The credits issued over 2022 represent 19% of total credits issued since the inception of the VCM. Credit issuances in 2022 were dominated by renewable energy (RE) and nature-based solutions (NBS) projects which jointly account for 76% of issuances over the year [1].

Whilst estimates vary, the VCM is still predicted to grow rapidly (see Figure.5) [6], largely driven by the steady increase in the national and corporate net zero commitments and improved standardisation and governance of the VCM. This is based on assumptions about business behaviour and how the policy and regulatory landscape will develop; for example, through growth projections derived from assumed future VCC demand (e.g. oil & gas companies and aviation sector) as well as expectations around the implementation of Article 6 under the Paris Agreement [7].  

Figure 5: Global Carbon Market Growth

Source: NatWest analysis; McKinsey: A blueprint for scaling voluntary carbon markets to meet the climate challenge; Ecosystem Marketplace

What external drivers are promoting and supporting market uptake?

COP27 and other policy, regulation, voluntary standard setting initiatives

COP27 made limited progress on official rules for a global carbon market under the Paris Agreement (Art 6), compared to COP26. However, several important initiatives have been announced: 

  • Africa Carbon Markets Initiative (ACMI): The ACMI intends to expand Africa’s participation in VCM and increase VCC issuance in the region by 19-fold; up to 300 million tons of CO2 per year by 2030. It estimates these credits will unlock $6 billion in funding for clean energy and conservation and support 30 million jobs by 2030 [8].
  • US Energy Transition Accelerator (ETA): The US announced a partnership with the Rockefeller Foundation, and the Bezos Earth Fund to create an ETA, to be up and running by COP28. The ETA will offer fixed-price verified greenhouse gas (GHG) emissions reductions as carbon credits for private sector entities to purchase. The aim of the ETA is to catalyse additional investment beyond that offered by governments, donors, and financial institutions for use in developing countries’ clean energy transition. In January 2023, further details and next steps were announced. [9]

Industry-led standard setters are forming to provide guidance and standardisation around the use of offsets and disclosure:

  • The Taskforce on Scaling Voluntary Carbon Markets (TSVCM): Private sector initiative convened in September 2020, working to scale an effective and efficient voluntary carbon market to help meet the goals of Paris Agreement.
  • ICVCM: An independent governance body for the VCM whose key role it is to develop and maintain Core Carbon Principles, which will set new standards for high-quality VCCs and define which carbon-crediting programs and methodology types are CCP-eligible. A timetable designed to introduce labels enabling buyers to identify high-integrity carbon credits in Q3 this year [10].
  • Voluntary Carbon Market Integrity Initiative (VCMI): Launched with support from the UK government, VCMI is a multi-stakeholder platform to drive credible, net zero aligned participation in voluntary carbon markets by promoting demand-side and supply-side integrity around the use of VCCs.

How is the ecosystem innovating to capture relevant opportunities, and what use cases have we seen through 2022?

Institution developments, technology & innovation; use cases and market integration examples

External drivers are paving the way for organisations to engage more meaningfully in the VCM – often surfacing novel and innovative use cases for companies, large and small, and also across sectors:

Risk mitigation is a key area of focus for market participants, given a variety of issues in recent times around ‘ghost credits’ and the general greenwashing theme that the market continues to navigate. The underlying quality of VCCs and verification by bodies such as Gold Standard and Verra is a key focus for stakeholders. Insurance companies are increasingly recognising the role they can play to offer protection for clients that are exposed to these risks.

Companies and investors are focusing on building their carbon assets. These may be used as part of their own offsetting strategies, or to stock up on high-quality supply as it emerges, and benefit from sales in the future with prices expected to continue rising.

Connectivity between buyers and sellers, and a seamless user experience are key to foster further market development as more participants enter the ecosystem. Data & technology are also key enablers here.

Notable recent market updates, including example themes associated:

  1. Carbonplace has raised USD 45 million in a strategic round of investment and formed its own entity.  The capital injection represents a commitment from some of the world’s largest financial institutions, which account for nearly $9 trillion in total assets, to achieve Carbonplace’s vision of accelerating corporate climate action by providing transparent, secure and accessible carbon markets.  Key themes: Market enablement and facilitation.
  2. Virgin Money has signed a three-year agreement with Foresight Sustainable Forestry Company Plc, under which it has provided a committed Revolving Credit Facility of £30m and an uncommitted accordion facility of up to an additional £30m. Interest margin is linked to Sustainability and ESG performance:  Key themes: Carbon sequestration; Sustainable finance.
  3. Aon and Revalue Nature announced they will collaborate to accelerate the deployment of nature-based solutions and reduce risks associated with carbon offset transactions. This aims to promote innovation in insurance for nature-based solutions and deliver climate mitigation benefits, improve biodiversity and support local communities. Key themes: Insurance; VCC risk management.
  4. Howden, the international insurance broker, launched its ‘World-First’ VCC insurance product. New insurance solution gives another layer of security - providing cover for third-party negligence and fraud. This was developed in partnership with Respira and Nephila, who were advised by climate risk finance company, Parhelion. It was incubated through product innovation work stream on Insurance Task Force of the Sustainable Markets Initiative. Key themes: Insurance; VCC risk management.
  5. BIS Innovation Hub, together with Hong Kong Monetary Authority and UN Climate Change Global Innovation Hub, launched Project Genesis 2.0 that explored technical feasibility to digitise green bonds with carbon forwards (also known as mitigation outcome interests or MOIs) attached to enhance the transparency, objectivity, and environmental integrity of the green bond market. Two prototypes developed to track, deliver and transfer digitised MOIs with use of blockchain, smart contracts and other technologies. Key themes: Digitisation; Blockchain; Green Bonds.
  6. Singapore lets firms pay carbon taxes with Gold Standard credits. The National Environment Agency of Singapore (NEA) and Gold Standard signed an agreement that enables Singapore-based companies to use eligible Gold Standard credits to fulfil a portion of their compliance obligations under the Singapore carbon tax regime. Key themes: Compliance & voluntary markets integration.
  7. The London Stock Exchange launched a Voluntary Carbon Market designation to facilitate financing at scale into projects that mitigate climate change. The framework can be applied to funds or operating companies that are admitted to Main Market or AIM.  It will seek to help funds and operating companies to raise capital to be channelled into projects that contribute to reducing the amount of greenhouse gases in atmosphere. Key themes: Customer journey and user experience; Market enablement and facilitation.
  8. The World Bank
  • The World Bank (IBRD) priced a five-year $50 million, principal protected Emission Reduction-Linked Bond that provides investors a return linked to issuance of Verified Carbon Units (VCUs) expected to be produced by a project in Vietnam. The bond is an outcome-based financial instrument that mobilizes private capital to support the financing of a project, with outcomes measured by generation of VCUs. Key themes: Capital markets; private capital.
  • The World Bank’s investment arm, the IFC (subscription may be required), in collaboration with multiple firms active in the voluntary carbon space, launched a fund for nature-based credits to tokenise on the blockchain. Key themes: Blockchain; Carbon portfolio / assets.



Useful reports and publications

FMSB: Voluntary Carbon Markets: An Overview Spotlight Review (September 2022): The paper explores the history and current landscape of carbon markets, with a particular focus on credits from voluntary emission reductions that are traded in the VCMs [2].

UK Climate Change Committee Report on VCM (October 2022): The report highlights that high-integrity VCCs purchased by businesses can play a small but important role in supporting the transition to net zero. It notes that before growing VCMs, the government must put in place stronger guidance, regulation and standards to ensure purchase of VCCs is not used as a substitute for direct business emissions reduction, and to improve the integrity and transparency of VCCs [7]. 

A Buyer's Guide to Natural Climate Solutions (NCS) Carbon Credits by National Climate Solutions Alliance / BCG (November 2022): This guide is intended to help procurement officers identify and purchase NCS carbon credits that fulfil the tripartite NCS goals of carbon mitigation, biodiversity gains, and benefits to people. Given the extensive ongoing work dedicated to carbon mitigation, the focus of the report is on biodiversity conservation and benefits to people.

Net Zero Asset Owner Alliance raises expectations for members’ real economy impact with updated Protocol (January 2023): Protocol expands its methodology and clarifies its expectations to members, including on the use or carbon removal credits, ensuring they set short-term decarbonisation targets that put them on a pathway to reaching net-zero greenhouse gas (GHG) emissions in their investment portfolios by 2050 [3].

Sources / references

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