Carbon market funding and prices suggest confidence is picking up

Funding activity and carbon credit prices in 2024 suggest that confidence in the voluntary carbon market is picking up again after a recent slump.

Carbon projects received US$16.3 billion of funding last year – still less than in 2023, but 18 times more than the value of all the carbon credits retired in 2024, according to a new report by carbon market solution provider Abatable.

These numbers, as well as the rising price of high-integrity carbon credits on the market, indicate “the continued interest from companies and investors in striking bilateral deals with carbon project developers to ensure high-integrity carbon credit supply, and reflect the positive carbon market sentiment seen in 2024,” the company says.

Core Carbon Principle credits yield a price premium

The value of the voluntary carbon market (based on carbon credit purchases) was down 61% in 2023 after a peak of nearly US$2 billion in 2021, as companies stepped away from carbon offsetting for fear of being accused of greenwashing.

But several integrity initiatives have since developed and launched standards to rate the integrity of carbon offsets – and buyers are regaining confidence. In 2024, credits labelled with the Integrity Council for the Voluntary Carbon Market (ICVCM)’s Core Carbon Principles (CCP) sold at a US$10 price premium compared to other credits. 

At the same time, offsets that received the CCP validation, or that were sold under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), made up nearly 50% of all the carbon credits retired in 2024 – up from 29% in 2021 (noting that the CCP didn’t exist then).

Nature-based solutions and CDR lead funding

Financing was provided to a total of 222 projects, led by nature-based carbon mitigation (48% or US$7.8 billion) and engineered carbon dioxide removal or CDR (38% or US$5.9 billion). These two categories also received the most funding in 2023, but interest in nature-based solutions increased last year, while CDR projects received slightly less finance.

More and more carbon project developers are aligning with high-integrity initiatives like CORSIA or the Core Carbon Principles: 56% of the largest 25 developers’ credit issuances from the last three years are now aligned with these initiatives, compared to 46% in 2022. This number is even higher among small project developers, with 65% of issuances from the last three years now aligned with high-integrity initiatives (compared with 45% in 2022). 

Companies keen to offset Scope 3 emissions

According to the report, the main driver of carbon credit use of the top 200 buyers was Scope 3 emissions mitigation in 2024, with 25 million credits retired for this reason (one third of the total).

In contrast, fewer companies are retiring carbon credits to make ‘carbon-neutral’ and ‘net zero’ claims (8 million credits in total, compared to 12 million in 2023). At the same time, credit retirements against ‘low-carbon’ product claims increased from 2 million in 2019 to 5 million in 2024 – all among the top 200 buyers of carbon credits.

This reflects a growing awareness of integrity guidelines around the integrity of carbon offsetting claims, with efforts led by the Voluntary Carbon Market Initiative (VCMI).

Valerio Magliulo, CEO and Co-founder at Abatable, commented: “The sustained levels of funding in 2024 clearly show the continuing strategic significance of long-term engagements in carbon credit projects, and underscores the enduring commitment of corporate buyers and large investors to the VCM. This funding activity and the shift from both suppliers and buyers towards high integrity shows a VCM laying fresh foundations for enduring transformation, and highlights the importance of carbon markets as a critical lever for climate action.”