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Market insight

Carbon Markets 2023 pulse check

April 18, 2023

Key takeaways

  • Purchasing carbon credits through the Voluntary Carbon Markets (VCMs) is currently the most established and scalable way to channel finance from the private sector to effective climate solutions and work toward societal net zero.
  • In Q1 of 2023, retirement and issuance volumes and average credit price were down year over year. The market is in limbo due to increased scrutiny of climate claims, accusations of greenwashing and a lack of clear guidance on how to best participate in the VCMs. 
  • Furthermore, in a world of imminent regulated disclosure, buyers are being more cautious and delaying purchases. Consequently, the outlook for the market is hinging on clarity on quality, the use of credits in target setting and the use of credits to make net zero claims.
  • In a sample of nearly 100 projects rated by Sylvera, 45% of the projects carry our lowest ratings of C and D, meaning they are likely very low quality. Meanwhile, less than 25% of projects have been rated AA or A, underscoring the limited supply of high-quality credits in the markets. 
To learn how Sylvera can help you navigate the carbon markets and discover high-quality credits, book a demo.

The decisive decade

2020 to 2030 was deemed the decisive decade for climate action. We are more than three years into the most crucial decade to halt and reverse the worst impacts of climate change and global warming. And here’s the daunting reality: we are not making progress fast enough. 

As UN Secretary General António Guterres stated with the publication of the latest IPCC synthesis report, “Our world needs climate action on all fronts - everything, everywhere, all at once.” The global community – from governments to NGOs, corporations to individuals – needs to leverage every tool available to collectively combat the climate crisis and secure a safe future for the planet and its inhabitants.

One of the best solutions at our disposal is the Voluntary Carbon Markets (VCMs). VCMs are international markets that allow the sale and purchase of carbon credits, which fund projects across the globe that remove greenhouse gas emissions or prevent them from being released into the atmosphere. 

Unlike compliance carbon markets, VCMs are not currently regulated by a centralized authority, e.g. a government. This adds complexity, but there are efforts in development that will offer streamlined standards for quality and transparency in the market. 

2021 saw VCM activity top $1 billion for the first time. It was a boom year. And despite a challenging macroeconomic environment in 2022, the market grew to nearly $2 billion.1 This growth was largely driven by demand from private sector climate commitments.

The leading corporate net zero standard, the Science-Based Targets initiative (SBTi) aligns these commitments with achieving the goals of the Paris Agreement: to limit the increase in the global average temperature to well below 2°C above pre-industrial levels, ideally below 1.5°C. 

While net zero action rightly emphasizes the importance of value-chain emission reductions, the SBTi also recommends that companies contribute to societal net zero: thinking beyond their own value chains when decarbonizing. This is known as BVCM, beyond value chain mitigation, and includes ‘no regrets actions,’ such as securing and enhancing carbon sinks and scaling permanent greenhouse gas removals.

While it is not the only option for BVCM, purchasing carbon credits through the VCMs is currently the most established mechanism to channel finance from the private sector toward effective climate solutions outside of its value chains and work towards societal net zero. A company meeting its net zero commitment is an important step for our planet—many companies meeting these commitments is even better. But “going above and beyond to contribute to societal net-zero” is the standard to meet the moment.

Simply put, carbon credits matter. Credit quality matters even more. The ability to invest in high-quality credits plays a significant role in companies mapping out and meeting their decarbonization strategies. 

Furthermore, as corporations make these commitments and analyze their marginal abatement costs, they are realizing two critical things: some emissions are going to be very expensive to mitigate, and some simply can’t be mitigated. It is not yet economically or technologically feasible to reduce 100% of emissions, which makes carbon credits an essential solution to leverage today. 

To make this crucial lever even more effective, businesses need to ensure they are investing in high-integrity carbon credits that will deliver real climate and societal impact. Sylvera is in the process of developing the definition of a “high-quality credit” because there is currently no universal consensus. 

In the meantime, carbon credit rating companies like Sylvera have emerged to help bring clarity and confidence to the VCMs. Purchasing high-quality credits ensures capital is funneled to projects that have trustworthy carbon accounting, additionality, permanence, and co-benefits. 

A look at the first quarter of 2023

Analysts forecast that VCMs will continue to scale substantially this decade. Here’s a review of this year’s first-quarter performance so we can begin to evaluate how growth is tracking. 

Retirement and issuance volumes

Nearly 39 million credits were retired in the first quarter of 2023. Compared the first quarter of 2022, retirement volumes are down 11% year over year and compared to the previous quarter, Q4 of 2022, volume retirements are nearly flat with a less than a 1% increase in the first quarter of 2023.

Additionally, carbon credit issuance in the first quarter is down 26% year over year. Nearly 46 million credits were issued. 

Verra continues to be the most dominant registry in the market

As seen by first-quarter retirements from 2022 and 2023, the significant majority of credit retirements are through the Verra registry (2022: 81%, 2023: 72%). Notably, the retirements with Climate Action Reserve grew 337% year over year this quarter.

The current state of the market & expectations for the remainder of 2023

Retirement and issuance volumes, along with average credit price are currently down year over year. The market is in limbo due to a combination of several factors. 

The challenging macroeconomic environment experienced in 2022 has not been alleviated in 2023. Inflation and interest rates continue to rise and organizations are tightening their budgets. In Google’s latest Sustainability Survey of ~1,500 VPs and C-Suite execs at global organizations, 45% of executives believe the current economic climate is regressing sustainability efforts and 33% of executives cite economics as forcing them to cut corners in their sustainability initiatives.

Increased scrutiny of credit quality and corporate climate claims, accusations of greenwashing and a lack of clear guidance on how to best participate in the VCMs is continuing to discourage some corporate actors from engaging in the market. 

Furthermore, media attention in early 2023 has put a major spotlight on credit quality risk and the integrity of the markets. From this year’s investigations into Verra and a major carbon credit seller to articles examining greenhushing, the carbon markets have continued to make headlines. 

While on the whole, accountability is essential to increasing the integrity of the VCMs, there is a risk that misleading headlines will contribute to buyer hesitation and interfere with any climate action. We have already seen buyers back away from the VCMs, sometimes without alternative climate action planned. Luckily, rating companies like Sylvera can help provide transparency and inform buyers on how to purchase high-quality carbon credits. 

The pressure to deliver real climate impact will continue as regulators take more of an interest in corporate sustainability strategies. Regulators such as the U.S. Securities and Exchange Commission are signaling that climate-related risk disclosures will expand to include how credits are used. Regulators in the UK and EU are also increasingly focused on how companies talk about their climate impacts; companies will soon need to substantiate and justify any claims such as ‘net zero’ or ‘carbon neutral.’

There is hope that some buyer confidence will be restored with the publication of guidance from three major initiatives this year: the IC-VCM guidance on credit quality, VCMI guidance on high-integrity uses of credits, and SBTi guidance on beyond value chain mitigation which includes the use of carbon credits. 

These efforts should enable buyers to include carbon credits in their climate strategies without fear of greenwashing accusations and ensure that they are achieving meaningful impact. With collective action, integrity and scale, VCMs can play a critical role in reaching global net zero. It’s time to focus on building confidence in the markets, not just calling out the problems.

Quality matters, but how do you ensure it?  

As the markets wait in anticipation for guidance and disclosure updates, the private sector should continue to develop and commit to high-integrity climate strategies. Buyers, however, need to be particularly concerned about the supply of high-quality credits. 

Of a sample of nearly 100 projects (a mix of nature-based and renewables projects) assessed by Sylvera, zero have received the highest quality rating of AAA. 

Less than a quarter (23%) have been rated AA or A, meaning they are likely high-quality and carry minimal risk of overstating their claims. This 23% is equivalent to approximately 150 million issued credits. But this volume of quality supply is difficult to acquire and clearly not adequate for the long term.

Notably, 45% of the projects in this sample carry our lowest ratings of C and D, meaning they are likely very low quality. This means there is a high risk that the project claims are inaccurate. Investing in these credits will have no real climate impact and invite valid criticism for greenwashing.

About 32% of projects fall somewhere in the middle, with ratings between BBB-B. This means the project claims may be overstated and buyers must conduct proper due diligence to analyze the project and carbon credit costs in detail before considering investing.

Businesses are seeking quality upstream 

It is evident that there is a particular shortage of high-quality credits available in the VCMs. Buyers will need to consider alternative approaches to guarantee the supply of high-quality credits, such as upstream involvement through pre-issuance offtakes and early-stage financing. Shrewd buyers are already doing this. 

With growing demand in the upstream market, buyers need solutions to access and assess early-stage project investment opportunities, complete due diligence, minimize risk, perform ongoing monitoring and secure high-quality credits for the highest climate impact and confidently meet climate commitments. These tools don’t exist today, but Sylvera is in the process of developing solutions based on ongoing collaborations with buyers. 

In the meantime, buyers must take action

We understand VCM dynamics are complex and rarely predictable. However, that does not detract from their potential to help combat climate change.

Delaying action until we have finalized guidance from SBTi, VCMI, IC-VCM and regulators is not an option. For those with ambitious climate targets, there are meaningful actions that can be taken with confidence right now:

To learn more about how Sylvera can help you reach your climate targets, request a demo
To keep up-to-date with the current state and future development of the VCMs, register for our upcoming summit on June 8th.


1Morgan Stanley Research (2023). Carbon Offsets: Rapid Growth and Product Evolution.

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This article features expertise and contributions from many specialists in their respective fields employed across our organization.