Read more in the February 14 edition of Invert Insights.
In their new report, State of Quality and Pricing in the VCM, ClearBlue Markets and Calyx Global provide a comprehensive analysis of trends in the VCM during 2024. The report introduces two new indices to track carbon credit quality and pricing: the Calyx Carbon Integrity Index™ and the Calyx-ClearBlue Carbon Price-Integrity Index™. These tools highlight the relationship between credit quality and pricing and are critical for building market confidence and driving the next generation of higher-quality credits.
The quality of carbon credits in the VCM showed slow but steady improvement in 2024. The Calyx Carbon Integrity Index™ revealed that the decline in lower-quality credits, particularly from REDD (Reducing Emissions from Deforestation and Forest Degradation) and renewable energy projects, contributed significantly to this improvement. REDD credits in general have been criticized for over-crediting, while renewable energy credits face challenges in proving additionality. The shift away from lower-quality credits has bolstered overall market integrity. This signals the importance of ensuring organizations conduct proper due diligence to ensure the projects have a material and measurable effect on GHG mitigation before purchasing credits.
The report also notes that credits with high greenhouse gas (GHG) integrity are increasingly commanding higher prices. In mid-2023, the market began prioritizing quality, with higher-quality credits receiving price premiums. This represents a positive shift toward a more mature market where pricing better reflects credit quality.
Credit issuances reached a four-year low in 2024, continuing a downward trend since 2021. Forestry and renewable energy credits saw the steepest declines, dropping 56% and 40%, respectively, from their 2021 highs. Despite this,, nearly 1 billion unretired credits exist.
In contrast, credit retirements hit an all-time high, with strong demand for newer, high-quality credits. Removal-based credits were particularly popular, with retirements exceeding issuances by 10 million for the first time. This indicates growing interest in projects that remove carbon from the atmosphere, such as afforestation, reforestation, and revegetation (ARR).
After a volatile 2023, prices stabilized in 2024. Nature-based solutions, particularly ARR credits, maintained high demand and prices. However, many REDD credits experienced significant price deterioration due to integrity concerns and reputational risks. Renewable energy and cookstove projects also faced suppressed pricing, exacerbated by the Integrity Council for the Voluntary Carbon Market (ICVCM) rejecting many renewable energy methodologies for its Core Carbon Principles label.
The Calyx-ClearBlue Carbon Price-Integrity Index™ revealed that high-integrity credits began commanding price premiums in Q4 2023. Before this, lower-quality credits often fetched higher prices due to market misconceptions. However, removal credits—even those with questionable integrity—still received higher prices than many high-integrity reduction credits, highlighting persistent pricing inefficiencies.
The report emphasizes that high GHG integrity does not necessarily equate to low environmental and social risks (ESR). Since December 2024, Calyx Global has integrated ESR assessments into its rating platform. Buyers are urged to conduct due diligence to mitigate reputational risks and ensure projects have effective safeguards in place.
Invert Insights.
💡 The VCM in 2024 experienced both progress and challenges. While improvements in quality and the prioritization of higher-integrity credits mark positive developments, oversupply, pricing inefficiencies, and lingering concerns about REDD and renewable energy credits remain. The introduction of robust indices provides a framework for tracking market evolution, supporting greater transparency, and aligning pricing with quality. The market is transitioning toward maturity, but continued focus on quality and accountability will be critical for sustained growth.
💡 As buyers look to avoid reputational risk, mitigating environmental and social risks will be an increased point of interest. Projects with high GHG integrity ratings can still carry significant ESR due to contextual factors like location, project design, and stakeholder involvement. This underscores the importance of evaluating environmental and social risk independently of GHG performance and project additionality. Learn more by scheduling a call with the Invert team.
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