Carbon Credit Market Projected to Surpass $4,028.24 Billion By 2032, with a 29.00% CAGR

Carbon Credit Market Stats

The global carbon credit market size was valued at USD 525.62 billion in 2024. It is anticipated to grow to USD 4,028.24 billion by 2032, according to the latest study by Polaris Market Research. Besides, the report notes that the market is expected to exhibit a robust CAGR of 29.0% over the forecasted timeframe, 2024 to 2032.

Carbon Credit Market Introduction

Carbon credits are permits that allow holders to emit a specific amount of carbon dioxide and other greenhouse gases (GHGs), with one credit typically representing the right to emit one metric ton of CO2. The main objective of carbon credits is to decrease the emission of GHGs in the atmosphere. The system is often regulated under international frameworks such as those overseen by the United Nations, which allocate a set number of credits to participating nations and establish transparent mechanisms for issuing, monitoring, and reporting emissions annually.

Governments may allocate emission allowances to firms, setting a cap on the amount of GHGs they can emit. If the firm surpasses the emission limit, it has to purchase credits. If, by chance, a firm buys additional credits, it has to trade the surplus on carbon exchange and marketplace. This is usually known as a cap and trade program. In addition to carbon credits, companies may also purchase carbon offsets, which represent emissions reductions achieved elsewhere, helping them achieve net-zero emissions goals. Public and corporate pressure to commit to net-zero targets is growing in response to increasing concerns over the climate crisis. As part of these efforts, organizations pledge to reduce emissions across their operations.

International agreements have played a crucial role in shaping the carbon credit market. For instance, the Paris Agreement of 2015 saw the endorsement of 190 nations that established their emissions standards and permitted emission negotiations. In the The Glasgow Climate Pact, agreed upon during the COP26 summit in November 2021, advanced the implementation of Article 6 of the Paris Agreement, enabling countries and organizations to trade carbon credits generated by verified emission reductions in other regions. These evolving government policies and directives to reduce greenhouse gas emissions are boosting the demand for carbon credits.

Carbon Credit Market Segment Insights

The carbon credit market segmentation is mainly based on type, project type, end-use, and region.

Carbon Credit Market Assessment Based on Type

Based on type, the compliance segment accounted for the largest market share in 2022. The compliance carbon credit market refers to a controlled system where firms, operating under a government or particular jurisdiction, offset their carbon emissions by purchasing carbon credits. These credits are typically generated through approved projects, such as renewable energy or reforestation, that result in measurable reductions in greenhouse gas (GHG) emissions. Governments globally are implementing policies and directives to reduce GHG emissions and combat climate change. These regulations often require companies to limit their emissions or purchase carbon credits to remain in compliance. In the compliance carbon market, carbon credits usually offer financial benefits for firms that adopt low-carbon technologies and projects.

Carbon Credit Market Evaluation Based on Project Type

Based on project type, the avoidance/reduction projects segment held the largest revenue share in 2022, driven by the growing adoption of renewable energy to reduce greenhouse gas (GHG) emissions. These projects typically involve offsets generated through renewable energy projects and methodologies to capture methane gas. For instance, nature-based solutions such as forest conservation projects help prevent deforestation and avoid related emissions by protecting carbon-rich ecosystems. Similarly, wind farms serve as clean energy alternatives to coal-fired power projects, thereby offsetting emissions that would have otherwise occurred. The carbon credits generated from these avoidance or reduction projects can then be sold or transferred to other organizations seeking to compensate for their own emissions, supporting compliance or voluntary net-zero goals.

Carbon Credit Market Trends

Growing Transparency in Trading Carbon Credits

To offset their own emissions and achieve sustainability goals, entities such as governments, corporations, and individuals purchase carbon credits. The carbon credits are transferred from the seller to the buyer through specific platforms or exchanges. There is a stringent observation on reusing those carbon credits that have already been utilized. The issuance, ownership, and retirement of carbon credits are being overlooked by governments and regulatory bodies that set up registries and tracking systems. This growing transparency in trading carbon credits is significantly shaping the carbon credits market landscape.

Rising Sustainability Practices

The growing shift towards nature-based solutions such as afforestation, reforestation, including green land management initiatives is gaining significant traction, as these solutions promise to safeguard biodiversity and environments while seizing excessive carbon emissions on their own. This eliminates the need for any massive technological framework to mitigate the unfavorable climatic conditions on Earth.

Carbon Credit Market Dynamics

Fiscal Empowerment for Local Groups

There is a growing opportunity to achieve global GHG reductions while addressing the development requirements of emerging nations. Carbon emission reductions in these regions contribute to global climate protection efforts, while the sale of carbon offsets provides financial benefits to local communities. By safeguarding and restoring grasslands, forests, and other ecosystems, carbon sequestration potential can be measured and converted into tradable carbon credits. These credits can then be purchased by corporations and individuals aiming to meet their climate targets. This integrated approach of bankable carbon directives delivering financial returns and conservation can encourage biodiversity and livelihood at the same time.

Growing Implementation of Government Policies

Governments are increasingly implementing policies and regulations to reduce carbon footprints, particularly targeting emissions from major organizations that impact broader ecological systems. For instance, a recent report from the Intergovernmental Panel on Climate Change (IPCC) has highlighted the global progress and challenges toward reducing carbon emissions. A key policy mechanism gaining traction is the Emissions Trading System (ETS). Under this system, organizations that exceed their allowable emissions must purchase credits, creating a market-based incentive to limit pollution. When the cost of emitting greenhouse gases is high enough, it discourages investment in carbon-intensive processes, such as those reliant on fossil fuel combustion in industrial sectors. Such initiatives are fueling the purchase of carbon credits and driving the carbon credit market forward.

Carbon Credit Market Key Players

Prominent companies in the market include established project developers and exchange platforms that facilitate carbon credit transactions. Key companies in the carbon credit market are mentioned below: