What's driving the shift towards higher integrity carbon credits - and can it continue?

As the end of the year approaches, the carbon market appears to be in a far stronger position than it was just 12 months ago. Though concerns about the integrity of some carbon credit projects linger in parts of the green economy, more stringent certification standards and regulations have driven carbon markets to increasingly focus on credit quality over quantity. 

BusinessGreen's latest Spotlight webinar, titled What carbon market reforms mean for businesses and investors, saw industry experts dissect the trends that have shaped carbon markets over the past 12 months - from imminent reforms to the EU and UK Emissions Trading Scheme (ETS) and the development of new carbon credit schemes across the aviation and shipping sectors to the latest negotiations at the recent COP30 Climate Summit - and explore how 2026 could prove to be a standout year for the expanding sector. 

The crucial role of compliance markets

The growing confidence across the sector is driven in part by closer integration between the Voluntary Carbon Market (VCM) and regulated or compliance markets. Ben Field, climate strategy manager at carbon credit platform Patch, explained how the VCM is where companies and investors choose to voluntarily finance verified emissions reductions or carbon removals beyond what is legally required. "Buyers purchase carbon credits, quantified under a standard, independently verified, issued on a registry and then retired in order to support climate action outside of a company's direct operations or value chain," he said. Conversely, compliance markets like the EU or UK Emissions Trading Schemes (ETS) place a requirements on companies in regulated sectors to hold carbon allowances. "Regulators set a cap for covered sectors, issue allowances and require covered companies to surrender and allowances equal to verified emissions," Field added. "Because these allowances are tradable, a carbon price forms based on supply and demand and abatement costs."

While regulated compliance markets typically cover carbon intensive industries such as power generators, heavy industry and some transport sectors, the VCM is open to a much broader set of organisations, including consumer goods, technology, retail, finance, and professional services.

The two markets serve different purposes - compliance markets create a hard legal framework and price signal for a defined slice of emissions, while the VCM is where many corporates look to go beyond compliance and deliver on climate goals on a voluntary basis - they are increasingly influencing each other.

For example, the EU and UK are considering reforms which would allow companies covered by their Emissions Trading Scheme (ETS) to purchase carbon removal credits, while the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) carbon offset scheme will place a legal requirement for airlines to secure high integrity credits, some of which could otherwise be sold on the VCM. Consequently, the standards governing projects selling credits into either compliance markets or the VCM are increasingly aligned.    

For Lydia Sheldrake, director of policy and partnerships at the Voluntary Carbon Markets Integrity Initiative (VCMI), the interplay between the voluntary and compliance markets is a sign of the overall market becoming more sophisticated and dynamic, as distinctions between the two sphere start to no longer "really exist". "It's more of a continuum between purely voluntary activity and purely compliance-based activity," she said.

Shifts towards integrity

This alignment has also helped to further accelerate already increasing demand for the most credible credits that can prove they are delivering real world emissions reductions or removals. For Sheldrake, so-called high-integrity credits have been an undeniable area of growth and are achieving higher prices, as companies participating in the VCM increasingly favour high integrity carbon credits as a core part of their net zero strategy.

Lorna Ritchie, director of public affairs at the Integrity Council for the Voluntary Carbon Market (ICVCM), agreed demand for high integrity credits is increasing, adding that such credits can both support sustainable development and the protection of nature and ensure that verified and additional emissions are removed from the atmosphere, further bolstering their value.

Ritchie argued a concerted effort to strengthen the standards and oversight mechanisms governing carbon credit projects is paying off. "There were stories around challenges with impacts on the local community and communities not being involved in decision making processes," she says. "This is why the Integrity Council was established in the first place."

Field added that developments such as the creation of enhanced standards for international carbon trading through Article 6 of the Paris Agreement are also playing a key role in driving carbon markets towards greater integrity. "That's been the core aim of the ICVCM and Core Carbon Principle (CCP) processes, essentially to weed out those projects that are over crediting, perhaps lack additionality or have weak permanence claims," he said. "We're seeing a real shift in the market. A lot of those concerns about integrity from the past are being addressed, which is a really positive signal."

What impact has COP30 had?

Ritchie observed that while carbon market developments may not have generated that many headlines at last month's COP30 Climate Summit in Belém, the talks delivered some encouraging progress as more governments rallied around established standards.

The Paris Agreement process may have only approved one methodology for approving credits to date, but it aims to approve at least 10 more in 2026. 

"One of the things that came out of COP was this push for governments to provide more clarity and explain the reason for inconsistencies with the rules in their reports - including recommendations on how to solve them," said Ritchie. "This is aimed at trying to increase pressure towards high integrity under Article Six. One of the ways many countries can increase the integrity of cooperative approaches is by using CCP labelled credits, so we're seeing more countries using CCP label credits in their in their cooperation between each other."

Sheldrake said that with bilateral carbon market agreements between governments ramping up, and progress being made to operationalise aspects of the Paris Agreement underpinning international markets, "the pieces of the puzzle are coming together". "We're definitely entering implementation mode," she added.

Another crucial development from COP30 was what Sheldrake describes as "really clear" political momentum behind carbon markets and carbon pricing beyond the negotiating rooms. "You're seeing a shift towards coalitions of the willing and coalitions of the working to drive practical early adoption -that's going to lead to real scale," she said.

Developments within the EU

Meanwhile, in the run up to the Belém Summit the European Union (EU) pledged to cut its carbon emissions by 90 per cent by 2040 against 1990 levels, after ministers voted through a compromise deal that included a number of "flexibilities" designed to make it easier for member states to meet their climate goals.

In response to concerns about member states' ability to meet the targets, the new plan should allow countries to buy international carbon credits to cover up to five per cent of the 90 per cent emissions cut required by 2040. Ministers also agreed to consider using international carbon credits to meet a further five per cent of required cuts.

This represents a major signal that demand for carbon credits is likely to significantly increase through to 2040, with EU member states set to become the biggest sovereign buyers of carbon credits internationally. Field said such moves, and a shift towards more regulated markets in general, are pushing carbon credit project developers to focus on delivering higher integrity credits. "It's basically indicating that high integrity, well designed, carbon credits are a viable means to help international bodies like the EU or companies decarbonise," he said. "There are some key questions that remain around which credits will qualify under what governance, but broadly speaking, we're seeing the market move towards fewer higher integrity units, which is going to constrain supply and demand is going to go up."

For Ritchie, the combination of EU demand for carbon credits, the encouraging negotiations at COP30, and efforts to integrate carbon credits into EU and UK ETS represent "really positive signals" for the market as a whole.

"It's showing that governments have increasing faith in the carbon market as a as a viable way of addressing climate targets," she said. "I think it is really important, though, as the rules are further developed and expanded on within the EU, that they ensure that they are meeting this integrity threshold."

Aviation demand ready for take off

These changes are accompanied by the on-going roll out of CORSIA, which is set to make the global aviation industry one of the biggest buyers of high integrity credits, with some estimates suggesting demand from the sector could soon exceed country-level demand. The prospect of airlines being required to offset their emissions using UN-approved credits holds out the projects of the global carbon market flipping from a scenario where there is a lack of demand to one where demand far outstrips supply.

Recent analysis has suggested the launch of CORSIA could deliver a market worth up to $2bn, which would be almost triple the annual transacted value of the entire VCM in 2023 based on today's prices.

Field said that while CORSIA has been "bubbling away in the background" for some time, it now appears to be "crystallising". "It's going to drive institutional demand for high integrity carbon credits," he predicted. "Demand is going to significantly increase, and supply is going to remain the same. So what does that mean? Price is going to go up.

"Companies need to start thinking about it now and looking at locking in volume and pricing sooner rather than later, before these big policy developments come to fruition and we see these huge price hikes."

Yet in light of governments controversially opting to delay a decision over whether to adopt a global carbon pricing system for the shipping industry by a year, following intense lobbying from the US, Saudi Arabia, and Russia - which had sought to block the proposals altogether - is there potential for a policy backlash which could see initiatives such as CORSIA watered down as they move from pilot phase to full implementation?

"There is always going to be political noise and bumps in the road," Sheldrake acknowledged. "But if you look over a medium to longer term time horizon, the direction of travel is undeniable and unstoppable."

Ritchie similarly accepted there were some unavoidable policy risk, but added there is widespread support for CORSIA from airlines themselves. "That, I think, has so far saved it," she said. "But you can never be too confident about these things." 

A lot of time, energy, and money has already been invested in establishing the framework for CORSIA, not least through aviation industry investment in sustainable aviation fuels and a pipeline of high integrity carbon credit projects, which means there is significant support for proceeding with plans that could prove transformational for the global carbon market. 

'Positive' steps from the SBTi

Meanwhile, the VCM is also continuing to mature. In November, the Science Based Targets initiative (SBTi) released a second draft of its revised Corporate Net Zero Standard for public consultation, as part of on-going efforts to streamline net zero target-setting processes and provide greater flexibility in how businesses can meet climate goals.

Plans to update the standard have proven controversial. Original proposals sparked a major internal row at the organisation and prompted green groups to argue initial plans to allow greater use of carbon credits to count towards corporate emissions targets risked undermining the integrity of science-based emissions goals.

In response to feedback, the updated draft has moved to clarify that investment in permanent carbon removals and related carbon credits can complement corporate efforts to reduce carbon emissions but should not replace decarbonisation efforts and should only be used to address residual emissions.

Though room for improvement remains more broadly, Ritchie sees the latest proposals as "really positive" for corporate climate action and the carbon market. "I think the new standard that's been developed by SBTi is really positive, and it creates a much clearer framework for how companies can use carbon credits and how," she said. "The SBTi has a significant number of companies signed up to it. I think that means that will drive increased demand for carbon credits. Whether it's comparable to the demand driven by CORSIA, I don't know, but I think it is a really positive step forward. And it's also great that they've clarified that companies must buy high integrity credits. Overall, I think it is a really positive signal, alongside what we're seeing from governments."

Both the VCM and the compliance carbon market continue to face complex challenges going into 2026. There is a need to finalise the rules and standards that have been proposed this year, while boosting demand for high integrity credits and restoring confidence in the market. At the same time, there is an urgent requirement to boost the supply of the credits to meet demand that is expected to increase sharply during the second half of the decade as Emissions Trading Schemes expand and CORSIA comes fully online. However, optimism is building that after several years of retrenchment the sector is well positioned to overcome these challenges and enter a new phase of growth centred on credible, verified, and high integrity projects.