Read more in the February 28 edition of Invert Insights.
A new report by Abatable, a leading provider of end-to-end carbon market solutions, titled Decoding the VCM in 2024 and beyond, underscores the critical role of climate financing in shaping the Voluntary Carbon Market (VCM).
The report shares that in 2024, $16.3 billion was invested in carbon market funding, a decline from $23 billion in 2023. However, despite this reduction, the scale of primary market funding remained 18 times larger than the total value of carbon credit retirements, reflecting a strong long-term commitment from corporate buyers and investors.
A key trend highlighted in the report is the continued dominance of carbon dioxide removal (CDR) projects in financing, with engineered and nature-based removal solutions attracting the most investment. Investors showed a strong preference for high-integrity carbon credits that align with net-zero commitments and stringent compliance requirements. While there was a slowdown in equity investments and project finance, bilateral agreements and direct corporate investments in project developers increased.
Additionally, climate financing is becoming more linked to national policies. Countries that have developed robust Article 6 frameworks under the Paris Agreement, such as Ghana, Kenya, Zambia, and Cambodia, are emerging as key investment destinations. As compliance-driven demand — such as CORSIA — expands, project developers are adjusting to meet the growing need for high-integrity credits that satisfy regulatory requirements.
Carbon financing and CORSIA.
The report highlights the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) as a major driver of demand in the VCM. During its First Phase (2024-2026), CORSIA is expected to add 135-182 million tonnes of carbon credit demand, increasing total market retirements by 28-37%.
Despite growing demand, supply remains constrained. Only 7.6 million credits currently meet full CORSIA eligibility due to strict integrity requirements. Eligible credits must be approved by ICAO, meet Core Carbon Principles (CCPs), and receive a Letter of Authorization (LoA) from the host country. The LoA requirement specifically has slowed supply growth, forcing suppliers to seek government approvals.
Pricing impacts will be significant. CORSIA demand is expected to be 2-3 times larger than eligible supply in its First Phase and 9-10 times larger by the Second Phase (2027-2035). As a result, CORSIA-compliant credits will command a premium, reinforcing a two-tiered market where low-quality credits decline while high-integrity credits appreciate.
The report expects increased corporate and airline participation, with major retirements occurring closer to 2027-2028, making CORSIA a key force in reshaping the global carbon market.
Carbon financing forecast for 2025
Looking ahead, 2025 will see an increased focus on carbon credit integrity, regulatory alignment, and shifting corporate strategies. We can expect to see stronger regulations around carbon credit use being introduced, including the EU Green Claims Directive, which aims to reduce greenwashing risks and push companies to invest in higher-integrity offsets and greater alignment between SBTi and ISO standards on how to use offsets in net-zero pathways, specifically with abating value chain emissions. Companies will likely move away from broad “carbon neutral” claims and instead emphasize low-carbon and climate contribution narratives, aligning with stricter global reporting standards.
The market will continue to see strong demand for CPP-approved and CORSIA-compliant credits with purchases considering co-benefit labels like ecosystem restoration and biodiversity. It’s expected that carbon credit retirements will remain steady with a slowdown of surplus credit growth as the market shifts its focus to high-integrity credits, and there is also a projected higher demand for removal and nature-based solutions credits.
The voluntary carbon market is maturing, with 2025 expected to bring greater regulatory oversight, higher demand for integrity-based credits, and a shift in corporate offsetting strategies. While climate financing dipped in 2024, long-term commitments from corporates and investors remain strong, particularly in carbon removals and engineered solutions.
Invert Insights.
💡 The market is signalling a shift toward high-integrity carbon credits with a prioritization on nature-based and carbon removal projects with measurable co-benefits like biodiversity, notable social and environmental benefits that help achieve UN SDGs, and better support and growth for our global communities.
💡 Many market players are also noting the shift to larger-scale offtake agreements. Frontier Climate, a carbon removal advance market commitment group, even went so far as to introduce a Carbon Removal Offtake Agreement template their members can use.
💡 CORSIA will play a major role in shaping future demand, creating a more structured and compliance-driven market. With new policies, corporate commitments, and a continued focus on high-quality carbon projects, the market is set for a pivotal transformation in 2025 and beyond.
