The role of carbon markets in reducing carbon emissions and strengthening the land sink at scale

Global CO2 emissions from land use and land cover changes contribute about 10% of anthropogenic carbon emissions annually, while terrestrial ecosystems also remove about 29% of annual emissions through enhanced growth and ecosystem recovery. The conservation and restoration of soils, woody biomass and other carbon pools have therefore emerged as key components of national and corporate net zero strategies. Both compliance and voluntary carbon markets, including bilateral and global carbon trading agreements, have the potential to accelerate emissions reductions and removals at local, national, and global scales. The success of these markets relies on effective policy frameworks, transparency and independent assessments of project integrity. Trust in the voluntary markets was shaken during 2023 following media reports of over crediting, while at COP28 nations failed to agree on standards and frameworks for Article 6 of the Paris agreement (on bilateral and UN-supervised carbon markets). 

 

Carbon ratings agencies provide independent analysis on the effectiveness and claims of carbon projects operating within the voluntary market. These assessments strengthen trust through greater transparency and price discovery, so that funding can be unlocked for the most effective projects. Here we will discuss challenges and opportunities for scaling the carbon markets, based on our assessment of over 130 nature-based carbon projects globally, assessing key risk factors such as project additionality (what would have happened in the absence of carbon finance), carbon accounting, and non-permanence (risk of future reversal). Our methodologies combine novel monitoring tools, including satellite observations and machine learning models, with information about project finances and policy context to assess the efficacy of every credit issued. Lessons learned can help emerging markets scale, and inform future projections and modelling frameworks of terrestrial carbon fluxes.