Report: The voluntary carbon market will shrink in 2023 as REDD+ and renewable energy deals are abandoned

May 30, 2024: New research published today shows that the voluntary carbon market (VCM) is shrinking for the second year in a row. However, the report’s findings also illustrate an increasingly complex landscape in VCM, with some market segments showing growth while others are declining.

Market analysis by Ecosystem Marketplace shows that overall market transaction volume has declined by 56 percent between 2022 and 2023. While the market saw an overall slower year last year than the banner years of 2021 and 2022, not all project categories followed this trend, underscoring the complexity of a market that has matured significantly as voluntary climate ambition has become more widespread in the private sector.

The most important conclusions from the report:

In 2023, the volume and value of the voluntary carbon market decreased for the second consecutive year since its peak in 2021, with a 56% year-over-year decline in reported transaction volume. The total reported value of the VCM transaction was $723 million. Disclosures provided by market participants indicate that the main reasons for buyer disinvestment were negative media coverage and a pause in purchasing as buyers waited for guidance from integrity initiatives.
In the Forestry and land use category, REDD+ loans, the most popular type of project, lost 62%. its value year to year, with the average price of loans falling by 23%. There was a wave of negative media coverage of REDD+ in 2023, which likely contributed to this decline; many loan purchasers may also have paused purchases while waiting for updates to commonly used project methodology. The withdrawal largely affected developers in Asia, Latin America and the Caribbean, where most of these projects are located.
Renewable energy credit transaction volume also declined compared to 2022, although less than the overall market. This decline seems to be a natural consequence of the decline in supply these loans. The report points out that credit buyers are also moving away from projects with weaker additionality, such as international clean infrastructure financing.
Transaction volumes increased in the energy efficiency, agriculture and home/community projects categories in 2023
The market share of projects that provide additional benefits for nature and communities continues to growwith 28 percent of transactions in 2023 supporting projects with verified additional environmental and social benefits “beyond carbon emissions”, such as protecting and restoring biodiversity, contributing to water security or supporting sustainable local economies.
On average, buyers paid $6.53 per tonne of CO2e for carbon credits in 2023, a slight decline compared to 2022. Average loan prices in 2023 were higher than in any year before 2022. As of early 2024, prices appear likely to rebound from this decline.
The publication of the ICVCM Coal Core Principles and the introduction of the VCMI Claims Code contributed to increased buyer confidence in the quality and fairness of the market. Many respondents, however, cited delays in implementing these initiatives and a lack of guidance from the Science-Based Targets Initiative (SBTi) on the use of greenhouse gas offsets to meet corporate net-zero targets as the main factor keeping buyers on the sidelines when purchasing most of late 2023 r.

Alex Procton, report author and manager of data solutions and analytics at Ecosystem Marketplace, says: “The entire voluntary carbon market is undergoing a transformation focused on design additionality, integrity and additional environmental and social benefits. As a result, we are seeing a shift in the supply of loans from different project types and regions of origin. It is important to pay attention to green shoots today to understand what types of carbon market projects will be most important for future climate action.”

Michael Jenkins, president and CEO of Forest Trends, says: “Unfortunately, it has been a difficult year for many coal project developers, especially those focused on preventing deforestation – mainly in the Global South. The voluntary carbon market is still the best tool we have to deliver private funds to communities around the world, calling for more resources to better protect nature. The science tells us very clearly that we will not achieve climate goals unless we act on natural climate solutions.”

Mark Mondik, vice president of carbon markets at 3Degreessays: “As the market adapts to new standards, new project types and new regulations, we are seeing a shift in demand towards higher priced loans with stronger environmental claims.”

Dee Lawrence, founder and director of the High Tide Foundation, says: “It is frustrating that in 2023, the warmest year on record, we saw the voluntary carbon market decline by 56 percent and climate change mitigation funding evaporated approximately $1.1 billion year-on-year previous one. Simply put, our global climate goals have become a little more out of reach.”

Dr. Will Turner, Senior Vice President of Natural Climate Solutions at Conservation International, says: “It is encouraging that loans from forestry and land use projects remain popular and categorically have the highest number of retirees. This means that underlying demand is driven by buyers who value nature’s role as an essential climate solution. We also see an encouraging trend towards high integrity credits, which are demanded by standards bodies and demanded by responsible buyers. The science-based use of credit as part of broader corporate climate strategies will continue to be a powerful tool to address the climate crisis at the pace and scale required.

Maximiliano Bernal Temores, Carbon Markets Assistant in Impact Finance & Markets at The Nature Conservancy, says: “If VCM hopes to increase its climate change mitigation potential and the value it provides to ecosystems and communities, especially those where NCS projects are implemented, it is imperative that the credit supply demonstrates its integrity by moving towards methodologies that use the best available scientific achievements and social security. The SOVCM Ecosystem Marketplace report and recent advanced market commitments such as the Symbiosis Coalition show that buyers are looking for signs of high integrity, such as additional benefits, tight additionality and solid durability. Lending standards and project developers must incorporate best science-based practices such as dynamic baselines and remote sensing to ensure that VCM, especially nature-based lending, meets buyer expectations. “

The full report, The State of the Voluntary Carbon Market 2024: On the Road to Maturity, can be downloaded here.

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Ecosystem Marketplace is an initiative of the nonprofit Forest Trends and the leading global resource for information on environmental finance, markets and payments for ecosystem services. As an online service, Ecosystem Marketplace publishes newsletters, breaking news, original articles and annual reports on market-based approaches to valuing and financing ecosystem services. EM believes that transparency is a hallmark of strong markets and that by providing accessible and reliable information on pricing, regulation, science and other market-relevant issues, it can drive market growth, catalyze new thinking and spur the development of new markets, policies and infrastructure necessary to support them. The Marketplace Ecosystem is financially supported by a diverse set of organizations, including multilateral and bilateral government agencies, private foundations, and corporations engaged in banking, investment, and various ecosystem services.