The next 12 months will establish whether the work done by proponents of the voluntary carbon market in 2024 will yield some much-needed buyer confidence and liquidity.
Concerns over the integrity of voluntary carbon credits, particularly the authenticity of their climate impact and their alleged excess issuance, have roiled the market over the past year. In the nature-based sector particularly, buying has been hesitant and intermittent, with prices losing substantial ground since the start of 2023. Trade levels for Indonesia's Katingan reducing emissions from deforestation and degradation (REDD+) project, which hosts some of the most actively-traded credits of any nature-based activity, fell from $5.15/t CO2e in January to $3.80/t CO2e in December for credits of 2019 vintage. Deals agreed for credits generated in 2021 by Pakistan's Delta Blue Carbon mangrove restoration project, which comprises emissions removal and represents the upper end of the nature-based price range, have fallen from $30/t CO2e to $26.75/t CO2e.
Proponents of the VCM have hailed the Integrity Council for the Voluntary Carbon Market's (ICVCM) Core Carbon Principles (CCPs) as a potential solution, suggesting that the rigorous requirements carbon methodologies must meet to earn the certification should assure buyers of the legitimacy of the credits they issue, while allowing sellers to charge a premium and leverage more upstream investment. But since the first raft of methodologies were approved for the CCPs in June, trade for credits bearing the label has been severely limited, with only a handful of deals reported.
Heading into 2025, the ICVCM must walk a tightrope as it goes about approving more methodologies that could yield the intended rise in liquidity. The multi-stakeholder initiative decided against making a swathe of renewable energy methodologies operated by carbon registry Gold Standard eligible for the CCPs at the start of August, which cut off about a third of the market from accessing the label. But the group has also come under fire for approving methodologies too hastily. One of the members of its expert panel stepped down in December after the ICVCM approved three REDD+ methodologies, arguing that by doing so it had set a precedent to flood the market with "millions" of credits that are over-issued and produced by projects that do not require carbon finance to run.
Prospects for the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) are similar. The first phase of the scheme began this year and is due to run until 2026. Trade has thus far been minimal, but with the late-October approval of the two largest registries in the world, Verra and Gold Standard, the foundations have been laid for a substantial increase in 2025. Developers with projects certified by Verra and Gold Standard, along with the American Carbon Registry, Architecture for REDD+ Transactions, the Climate Action Reserve and the Global Carbon Council, can now sell Corsia-eligible credits directly to airlines seeking to comply with the first phase of the scheme, allowing them to potentially tap into a significant new channel of demand.
In order to be eligible for Corsia, carbon credits must bear a letter of authorisation (LOA). These must be issued by the competent national authority to certify that the credit can be traded as an international transfer of mitigation outcome and used by other countries towards their own nationally determined contribution. The establishment of the Paris Agreement Crediting Mechanism (PACM) under Article 6.4 at the UN Cop 29 conference in November is likely to increase the proliferation of LOAs and the number of Corsia credits available on the market in 2025. It is unclear how much impact the long-awaited deal on Article 6 will have in and of itself before the end of 2025 though, beyond unlocking demand from countries seeking to make progress on their nationally determined contributions.
