The EY Net Zero Centre has released its latest global voluntary carbon market outlook 2024 report. It says that carbon credits will become increasingly valuable, driving both emissions reductions and business innovation. As the costs of credits and abatement activities rise, business leaders who engage early and thoughtfully will be best positioned to shape the future with confidence.
The report says that businesses are under increasing pressure to act on climate change and to make deep cuts to their emissions. Trillions of dollars in climate finance need to be deployed annually to remove carbon from the atmosphere. To meet that need, voluntary carbon markets must grow.
With time, carbon could become a new commodity class. But first, businesses need standard frameworks, transparent data and trusted intermediaries to support industrial-scale removal.
The report outlines the crucial role that carbon credits will continue to play in decarbonisation strategies and offers an outlook for the voluntary carbon market.
Building on the 2022 edition, this report updates insights into the dynamics of supply, demand and pricing in voluntary carbon markets.
Voluntary carbon markets are still evolving
More than half of the world’s biggest companies have set net zero targets, which is driving demand in voluntary carbon markets. But, the EY report says, carbon credits have not yet earnt their social licence.
Despite growing demand, significant policy and philosophical divisions impede progress: debate between carbon removal and avoidance, preference for nature-based or technology-based projects, and the equitable distribution of benefits to local communities. Addressing integrity concerns will also require better and more rigorously enforced standards.
Several international initiatives promise to address shortcomings and strengthen confidence over time. These include:
- Voluntary Carbon Markets Integrity (VCMI): The VCMI, established in 2021, is setting principles and frameworks for high-quality carbon credits.
- Integrity Council for the Voluntary Carbon Market (ICVCM): The ICVCM, established in 2021, aims to enhance the overall efficiency and effectiveness of the voluntary carbon market.
- Global Carbon Market Utility (GCMU): Launched at COP27 in 2022, the GCMU aims to enhance the quality and transparency of carbon credits and to scale the global carbon market.
- International Sustainability Standards Board (ISSB): The ISSB’s first climate disclosure standards, published in 2023, encourage greater transparency and accountability, and enable a more informed comparison of the performance of companies.
EY says that these these initiatives, together with regional initiatives like the European Union’s Carbon Border Adjustment Mechanism and several country-level carbon taxes, will strengthen confidence in the supply, trade and use of credits, and drive demand. The foundations are being laid, but it will take time for markets to flourish.
Matthew Cowie, Climate Change and Sustainability Services Partner, EY New Zealand, said, “Over time, as national emissions budgets tighten, governments are likely to impose more stringent regulatory requirements on businesses, particularly in advanced countries. This will reshape voluntary credit markets.”