The Voluntary Carbon Market (VCM) hit a value of $723mn 2023, but greenwashing concerns have caused the market to tumble.
The VCM reached its peak in 2021 with a value of $2bn, but new research from Ecosystem Marketplace shows that the volume of transactions is down 56 per cent year-on-year in 2023. The principal cause of this has been a shift in attitude towards carbon credits and offsetting techniques which critics label as greenwashing.
Carbon credits have found themselves under the microscope as organisations race towards net zero targets and heightened sustainability credentials. An investigation into Verra, a lead carbon credit supplier, revealed that over 90 per cent of rainforest carbon offsets are worthless “phantom credits.” It was discovered that carbon credits purchased from Verra do very little to remove emissions from the atmosphere and better the environment.
Exposes on the VCM have diminished its value significantly, with the market losing 62 per cent of its value between 2022 and 2023. Trust in carbon credits has been heavily eroded and, in order for the market to have value and impact, urgent reforms are necessary. Most importantly, carbon credits need to be backed by scientific evidence proving that they do remove one tonne of carbon from the atmosphere per credit purchased, as intended.
The most common type of carbon credits are reforestation credits which pledge to plant trees and halt deforestation with each credit purchased. These are known as REDD+ credits but, despite their popularity, they still lost 62 per cent of their value last year with the average cost of a REDD+ credit falling by almost a quarter. Though the slump in value is down to poor credibility, this has had negative consequences for reforestation projects across Asia, Latin American, and the Caribbean.
However, according to the report from Ecosystem Marketplace, the market share for projects delivering benefits for nature and communities grew last year, with 28 per cent of transactions in 2023 supporting these co-benefit projects with “beyond carbon” impacts. The report highlights greater value being placed on credits associated with tangible projects that deliver both human and environmental benefits.
Overall, the VCM is likely to see a continuation of its declining value as organisations seek provable and deliverable projects to improve their environmental impact and support their sustainability claims. Unless the market aligns itself with more stringent regulations and standards, carbon credits will remain a dirty term.
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