The Carbon Credit Industry Seeks a Path Back to Growth

A more cautious and scaled-down carbon credit market is attempting to return to active growth.

Over the past two years, the sector has been hit by a wave of negative headlines, academic research, and lawsuits portraying carbon credits—bought, sold, and traded—as synonymous with “greenwashing.”

In recent weeks, however, carbon credits—which allow greenhouse gas polluters to avoid cutting some of their own emissions by paying for reductions elsewhere—have received renewed backing.

In Washington, the Biden administration has launched a major push to promote so-called “high-quality” carbon credits, often referred to as “carbon offsets.” A key standards-setting body for companies seeking to reduce emissions to “net zero” has signaled that the use of such credits could expand significantly. At the same time, governments from California to Singapore and Australia have begun integrating voluntary carbon credits into mandatory carbon pricing schemes and other initiatives aimed at decarbonization and the expansion of renewable energy—particularly in low- and middle-income countries.

These developments have raised hopes that reformed and more accountable voluntary markets—where companies and governments choose to buy and sell credits—could still fulfill their promise of channeling tens of billions of dollars into projects that protect ecosystems and reduce the concentration of greenhouse gases in the atmosphere.

“Voluntary carbon markets can help unlock the potential of private markets to reduce emissions,” said Janet Yellen during a briefing in May, quickly adding that “this will only be possible if significant existing challenges are addressed.”