2025: The Resurgence of Carbon Markets

Carbon credits are once again gaining traction as a compelling investment opportunity. Given the increasing focus on cost-effective decarbonization strategies, it's crucial for companies to understand the underlying reasons for this resurgence, and why now is a pivotal moment.

While the carbon credit market has faced some challenges in recent years, with a slowdown in usage growth since the turn of the decade despite record-high retirement volumes in the first half of 2025, a singular focus on retirements overlooks a more fundamental trend. Investor activity remains robust. According to MSCI Carbon Markets, the capital raised for carbon credit investments between 2021 and 2024 was approximately three times that of the preceding three-year period. Furthermore, 2025 is projected to be a record-breaking year for such investments.

Carbon credits are not new. So, what's behind the growing investor interest?

Government interest in carbon credits, initially lukewarm since the 2008 financial crisis, has recently intensified. The EU, for example, enacted the 'Carbon Removals and Carbon Farming' legislation late last year. This law establishes a unified framework across the EU for certifying carbon removals, including long-term CO2 sequestration in forests, geological formations, and various products. Following suit, the UK Government announced in July its intention to integrate carbon removal credits into its emissions trading system.

This trend extends beyond Europe. Japan now permits the use of carbon credits issued through its Japanese Crediting Mechanism within its domestic carbon market, a practice that will become mandatory next year. Moreover, countries such as Singapore, China, Brazil, Kenya, and Indonesia have all implemented policies that incorporate carbon credits into their climate strategies.

Given that government engagement often precedes market expansion for various innovations, from mobile phones to solar panels, this growing governmental interest in carbon credits suggests significant future growth, a trend that astute investors appear to be recognizing.

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The New Integrity Landscape

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One of the primary critiques of carbon markets revolved around the lack of quality, a factor that contributed to the slowdown in carbon credit usage from 2023. Since then, the pursuit of higher quality has become a defining characteristic of carbon markets.

This focus on quality appears to be yielding results. A significant development is the emergence of ratings agencies, which provide carbon credit investors and purchasers with detailed insights into quality and risk. Additionally, the Integrity Council for the Voluntary Carbon Markets has established a baseline for quality across carbon markets through its Core Carbon Principles.

Interestingly, once quality is defined, its scarcity becomes even more apparent. Typically, fewer than 20% of rated projects meet the quality standards expected by most carbon credit buyers. This shortage has attracted investors who recognize a financial opportunity in developing the next generation of high-quality supply.

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Final Thoughts

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The factors mentioned earlier are creating a favorable environment for carbon markets, attracting significant investor interest and capital. Recent investments highlight this trend:

• Imperative Global, a carbon project developer, secured US$250 million from carbon investment manager Artemeter.
• Nature-based project developer Chestnut Carbon raised US$160 million, followed by a financing facility with JPMorgan.
• Carbon credit rating agency BeZero received US$32 million in funding.

This surge in activity has led some observers to compare the current state of carbon credits to the early stages of mature renewable energy markets. Renewable energy gained traction as quality standards improved and governments implemented supportive policies like feed-in tariffs and tax incentives. The combination of Article 6, government backing, and enhanced quality frameworks could similarly propel carbon markets onto a rapid growth trajectory.