This shift is leading to a market that is not only more transparent but also more liquid and accessible, as carbon credits become more tradable commodities
In this year’s edition of our Carbon Market Buyer’s Guide , we highlighted eight megatrends expected to shape the future of carbon markets. In this blog, we’re taking a closer look at one of the most significant trends: the increasing drive towards a more commoditised market underpinned by a standardised definition of quality. What does this mean for carbon buyers, and more importantly, what steps can you take now to stay ahead of the curve?
Over the past few years, the voluntary carbon market has grown rapidly in scale and complexity. What was once a relatively niche space is now attracting more mainstream attention from corporations, investors, and regulators. However, it’s crucial to remember that despite the carbon market maturing, it is still relatively nascent. As the carbon market grows, one thing is becoming increasingly clear: we’re heading towards a market where the definition of quality is more standardised.
But what does that actually mean for how quality is defined? As the carbon market matures, there’s a stronger push than ever to ensure it meets stringent, high-quality standards, with clearer rules, stronger safeguards, and greater accountability.
Historically, the voluntary carbon market has been fragmented. Different standards, varying methodologies, and a lack of clear benchmarks have made it difficult to compare one carbon credit with another. Buyers often had to rely on their own technical knowledge to assess project credibility and impact, which posed a challenge given that not all buyers have the necessary expertise. But that's starting to change.
As standardisation enhances fungibility, trust, and scalability in the carbon market, clearer signs of convergence with compliance frameworks are emerging, all aimed at safeguarding quality and integrity. Initiatives such as the ICVCM's Core Carbon Principles and the VCMI Claims Code are all pushing towards greater standardisation. This move toward a shared understanding doesn't just bring clarity; it establishes the groundwork for a more functional and liquid market, potentially even one where carbon credits can be treated as comparable assets.
A key aspect of the above-mentioned convergence is the standardisation of quality. For years, the definition of a 'high-quality' carbon credit was not clearly defined. But with growing scrutiny and increasing alignment among standard-setting bodies, a more consistent and rigorous understanding is emerging.
This standardisation is further supported by clear, harmonised definitions, which are essential for building trust and scaling the market. These definitions will enable buyers to easily compare projects across different types and regions. Contributing to this enhanced comparability and market confidence will be the growing role of carbon credit rating agencies. They will likely play an increasingly important and independent role in assessing project-level quality, empowering more informed decision-making.
Looking ahead, the increasing participation of established financial institutions, the natural maturation of the carbon market, and importantly, the potential for legal recognition of carbon credits as financial assets, will be key drivers in establishing a more stable, transparent, and commoditised market.
Commoditisation brings significant benefits, including greater transparency, reduced transaction costs, and enhanced liquidity, which are crucial as the carbon market scales and attracts more participants. When credits are more comparable, it becomes easier to trade them, bundle them into portfolios, and integrate them into broader climate strategies.
While (parts of) the market moves towards commoditisation and standardisation, the need for expert guidance will continue. Buyers need to stay informed as the market evolves and develop their own perspective on quality criteria. Navigating the complexities of carbon credit purchases will require engaging with knowledgeable climate experts to ensure strategies remain both effective and impactful.
A more streamlined market helps buyers move with confidence and lighten the load of juggling climate goals with internal capacity.
Clear, harmonised definitions of quality will enable buyers to easily compare carbon credits and understand their attributes, fostering greater trust and confidence in the market.
With standardised quality definitions making carbon credits more easily comparable (essentially creating clear benchmarks for value), trading can become more streamlined and efficient. In this context, greater liquidity means that it will be easier and faster to buy and sell carbon credits without significantly impacting their price, similar to well-established financial markets. This increased ease of exchange can foster greater market activity.
A more commoditised market establishes clearer, more consistent criteria for evaluating carbon credits. Currently, buyers often face complex and time-consuming processes (i.e. due diligence) to understand the quality and impact of different projects. Standardisation simplifies this evaluation, potentially reducing the time, resources, and therefore the transaction costs associated with buying carbon credits.
A shared understanding of what constitutes a high-quality carbon credit, facilitated by standardisation, can encourage broader participation from both buyers and sellers. This clarity reduces perceived risk and lowers barriers to entry, attracting more buyers to the market. As the market gains more participants and greater investment, “it" (the carbon market) can scale up its operations and contribute more significantly to global climate goals by channeling more finance towards emissions reduction and removal projects.
As standardisation reduces the complexity and effort required to assess the fundamental quality of carbon credits, buyers can increasingly shift their focus towards the more nuanced aspects of their purchases. This includes a deeper evaluation of the overall climate impact – the actual amount of emissions reduced or removed – and the valuable additional environmental (e.g., biodiversity conservation) and social benefits (e.g., job creation, community development) associated with different carbon reduction and removal projects. This allows buyers to make more informed decisions that align with their broader sustainability goals beyond just offsetting carbon emissions.
To capitalise on the opportunities presented by this move towards greater standardisation and to ensure the integrity of their climate actions, businesses should take a proactive approach. The following steps outline how your organisation can strategically engage with the evolving carbon market.
Stay informed about evolving quality standards (ICVCM, VCMI, etc.) and align your internal criteria accordingly. Go beyond price to focus on the actual climate impact, co-benefits, and long-term credibility of your carbon credit purchases.
Actively communicate with credit providers to understand their adaptation to new quality standards. This builds confidence in your purchases and can unlock better, more impactful options for your climate goals.
Don't treat carbon credits in isolation. Ensure they are a complementary component of a broader decarbonisation plan that prioritises internal emissions reductions and aligns with your overall climate objectives.
Ensure that all relevant internal teams (finance, procurement, sustainability, communications) have a shared understanding of your carbon credit strategy and the evolving market. Communicate your carbon credit usage and claims transparently and responsibly, backed by reliable data.
Recognise that the carbon market is still developing. Remain flexible and willing to adapt to new standards and frameworks while actively participating in shaping the market's evolution through engagement and knowledge sharing.
As the market continues to evolve, clarity around quality will be one of the biggest enablers of growth. Standardisation doesn't just support confidence—it helps ensure that climate finance flows where it's most needed, at the speed we need.
Explore how your organisation can align with emerging quality standards. Get in touch with South Pole to review your current climate strategy in light of the latest market developments.
