Carbon Markets: Trends, Trials, and Turning Points

Over the past decade, there has been a surge in interest and discussion surrounding carbon markets, indicating strong potential for a global, efficient market for carbon and emissions. However, while the public and private sectors have continued establishing emissions reduction standards and advancing voluntary carbon market (VCM) efforts, scrutiny of carbon market practices and related climate impact has intensified.

While substantial strides have been made in the carbon market, S2G Ventures believes continued maturation depends on effectively addressing three primary challenges to market scale: transparency, standardization and incentives. S2G believes there are numerous ways to mitigate these challenges and build systemic value. 

Carbon market development will require more project developers, verifiers, financiers, buyers, and more. In other cases, S2G believes the market will be best supported by current actors doing less or focusing efforts on a singular role. Offerings that are not collaborative or supportive of a transparent, consistent, efficient, and high-quality market are obsolete in the next phase of carbon market expansion. Meanwhile, those who productively de-risk present unknowns could benefit substantially and generate notable impact.

Informed by market participants, we briefly highlight a number of market developments since the rise of corporate Net Zero commitments and this spike in VCM activity – focusing on recent headwinds and notable gaps still facing the carbon markets. Then, we offer a high-level frame of the available solution set and illustrative ideas to alleviate current market frictions.