Consolidation in the Voluntary Carbon Markets: A Pathway Through Pain to Progress
Author: Colter Miller
Co-author: Kaden Gulamani
Introduction
Climate change has reached a critical tipping point. On January 10, 2025 NOAA released a report confirming that 2024 was the warmest year on record, underscoring the urgency of addressing human-driven greenhouse gas emissions. Left unchecked, these emissions are projected to cause catastrophic economic, societal, and environmental damage. SwissRe estimates that by 2050, climate change could shave off 18% of global GDP annually, a staggering $40 trillion per year of losses.
Yet, existing decarbonization frameworks have struggled to provide effective solutions. Regulatory markets like the EU ETS play a significant role, but their limited reach and slow evolution highlight gaps that voluntary carbon markets (VCMs) are uniquely positioned to fill. Over the past 6 years, VCMs have seen explosive growth, quadrupling in value between 2020 and 2021, only to experience a dramatic contraction. Market confidence eroded due to over-crediting, bad actor fraud, and unclear standards, which converged with the end of low interest rates to drive a 60% drop in trading volumes by the end of 2023.
Despite these challenges, history shows that volatility in developing markets is not only common but important for maturation. Similar to past technology market corrections, such as the dot-com, biotech, and cleantech booms, consolidation is a corrective force that presents opportunities to rebuild trust, reset the roadmap for growth, spur diverse innovation, and align market incentives to drive real market value. We believe that the consolidation the VCMs are currently experiencing is essential for long-term growth and stability. By embracing this transformation, stakeholders can strengthen VCMs as pivotal tools for decarbonization and global climate action.
The Role of Voluntary Carbon Markets
At their most impactful, VCMs function as dynamic, leading-edge platforms for decarbonization, especially in sectors with difficult-to-abate emissions. More agile than regulatory markets—which operate at scale but within conservative, enforced frameworks—VCMs provide businesses the flexibility to address emissions proactively. This is particularly crucial for Scope 3 emissions generated across supply chains and outside a company's direct operations. These indirect emissions often constitute the majority of a company's carbon footprint, making them critical yet challenging targets for decarbonization. By granting market participants the agency to seek offerings that align with their specific goals and swiftly adapt to real-world challenges, VCMs enable companies to implement diverse emissions reduction strategies, demonstrating tangible benefits and accelerating progress in the fight against climate change.
Beyond merely offsetting emissions, VCMs act as "innovation sandboxes," promoting the development and testing of cutting-edge decarbonization technologies, methodologies, and financial instruments. By facilitating transactions where customers pay for verifiable outcomes, VCMs allow suppliers to experiment with new and diverse solutions. This dynamic environment enables businesses and innovators to identify effective strategies and build pathways for scalable carbon mitigation and removal. By allowing a greater latitude to test, pilot, and deploy innovative approaches across a wide range of technology types, so long as those credits demonstrate verifiable efficacy and permanence, VCMs uniquely promote innovation compared to more rigid compliance markets.
Furthermore, VCMs help reduce political risk for policymakers by providing real-world evidence of successful approaches. This evidence can inform and spur the development of effective compliance and regulatory frameworks, improving outcomes under those more rigid regimes. As such, VCMs not only contribute to immediate emission reductions but also play a pivotal role in shaping future regulatory landscapes. For VCMs to achieve their full potential, they must evolve into transparent, standardized systems that prioritize integrity. As innovation accelerates, VCMs are positioned to serve as testing grounds for technologies and frameworks that will shape the transition to compliance markets, ensuring that emissions reduction pathways are adaptable, scalable, and impactful.
Market Consolidation and Historical Parallels
The recent pullback of both transactions and investments in VCMs is a natural stage in the evolution of emerging industries. Historically, markets often undergo cycles of rapid expansion followed by corrections that expose underlying vulnerabilities, a pattern encapsulated by the Gartner Hype Cycle. This model illustrates how initial optimism and speculative investment can lead to inflated expectations, which are then tempered by a period of disillusionment. During this challenging phase markets have the opportunity to mature and strengthen as new regulations, standards, and infrastructure businesses form to support the next wave of growth.
The dot-com boom of the late 1990s offers a striking parallel to the current evolution of VCMs. Fueled by speculative investments, an explosion of internet startups formed, many lacking sustainable business models. When the bubble burst, numerous companies failed. However, resilient companies like Amazon survived, not because the crash made it easy, but because they focused on delivering real value and meeting genuine market needs. Similarly, VCMs have experienced rapid growth driven by enthusiasm for addressing climate change, leading to over-optimistic projections and investments without clear long-term viability. Issues like inconsistent credit verification and lack of standardization mirror early vulnerabilities of the Dot Com Boom. Market corrections, though challenging, set the groundwork for the next stage of growth. Just as the internet industry matured through improved standards and infrastructure, VCMs can evolve by addressing structural gaps and enhancing credibility. While scaling promising technologies globally is complex, through consolidation, markets that address real needs find renewed growth as builders, investors, and regulators realign to overcome these challenges.
Between 2020 and 2021, VCMs experienced unprecedented growth as businesses and investors embraced carbon offsets, with trading volumes and investment allocation jumping 10x over 3-4 years. However, this rapid expansion revealed critical issues related to trust, transparency, and integrity. High-profile cases like the Kariba project in Zimbabwe exposed over-crediting and conflicts of interest, eroding confidence among buyers and stakeholders. An overabundance of methodologies and underdeveloped Measurement, Reporting, and Verification (MRV) infrastructure further compounded these challenges.
These systemic vulnerabilities, coupled with shifting monetary policies and the end of zero-interest-rate environments, triggered a significant market correction, with trading volumes plummeting by over 60% from their peak. While this contraction can be disillusioning for participants and investors alike, it marks a crucial juncture for the industry. Consolidation provides an avenue for successful market players—typically those that have efficiently deployed capital to commercialize and scale their technologies, delivering promised products and services beyond early adopters—to unlock further capital and form strategic partnerships. It effectively shuffles the deck, revealing refined guidance for the market's next chapter and carving out breathing room for survivors to expand as markets stabilize. Moreover, consolidation in VCMs can catalyze the development of new infrastructure and technologies by concentrating resources on initiatives that emphasize rigorous standards, scalable solutions, and credible practices essential for rebuilding trust.
In essence, the consolidation of voluntary carbon markets is a natural and necessary step toward building more resilient and impactful carbon markets. By confronting and rectifying past shortcomings, the market can evolve to meet the urgent demands of decarbonization. This period offers a strategic opportunity to strengthen foundations, foster innovation, and ultimately accelerate progress in the fight against global warming.
Case Studies and Lessons Learned
The consolidation phase of VCMs has produced both cautionary tales and success stories, offering valuable insights into how this period is reshaping the industry. Companies like Running Tide and Nori, once heralded as pioneers, faced significant challenges that ultimately led to their closure. In contrast, companies like Global Thermostat and Aker Carbon Capture have navigated this turbulent landscape through strategic acquisitions and partnerships, signaling potential paths forward.
Running Tide: Navigating Volatility and Failure
Running Tide, a startup specializing in ocean-based carbon sequestration by growing and sinking biomass (kelp and wood chips), was once a market darling. With over $58 million in funding and high-profile clients like Microsoft, the company appeared poised for success. However, it faced a confluence of challenges that proved insurmountable. Reliant on non-binding offtake agreements, Running Tide lacked guaranteed revenue streams. Technical difficulties in measuring and verifying the carbon sequestration efficacy of their methods led to skepticism and delays in delivering verified credits. A collapse in carbon credit market prices and tightening fundraising conditions pushed the company’s finances to the brink. Running Tide's closure sent shockwaves through the voluntary carbon markets earlier this year and underscores the vulnerability of companies that depend on speculative market growth without robust validation of their methodologies and secure, long-term funding. It serves as a cautionary tale about the importance of product-market fit and the perils of operating in a rapidly evolving and unregulated market.
Nori: The Challenges of Nature-Based Solutions
Similarly, Nori, a platform focused on carbon removal through soil carbon sequestration in agriculture, encountered significant hurdles. Despite raising over $20 million and pioneering nature-based carbon removal, Nori couldn't overcome the combination of a stagnant market and a difficult funding environment. The company faced increasing skepticism toward nature-based solutions, fueled by concerns over the efficacy and permanence of such methods, concerns predominantly sparked by issues raised in other nature-based credit categories. High-profile instances of over-crediting and fraud in forestry projects eroded trust in the broader category of nature-based credits. This widespread distrust spread across the segment, leading to a pullback in support. Nori's innovative approaches, including the development of the "Regenerative Tonne," investments in transparency infrastructure, and partnerships with carbon quantification providers, weren't enough to ensure survival in an increasingly competitive and uncertain landscape. Nori's closure highlights the critical need for robust financial strategies and the challenges of navigating evolving scientific and technological aspects within the VCM.
Global Thermostat and Aker Carbon Capture: Strategic Positioning
Amid these challenges, companies like Global Thermostat and Aker Carbon Capture illustrate how strategic moves can offer resilience during consolidation. Global Thermostat, specializing in direct air capture (DAC) technology, was acquired by Zero Carbon Systems. While the deal's terms remain undisclosed, the acquisition reflects investor confidence in technological approaches to carbon removal that offer enhanced measurability and verification. Despite high costs and technical hurdles, this move signals optimism about DAC's long-term potential and an expectation that reliable demand for high-quality credits will drive further innovation, scale, and cost improvements.
Aker Carbon Capture's $400 million partnership with SLB (formerly Schlumberger) presents an even more optimistic scenario. This deal signifies strong confidence from a major conglomerate in the viability of carbon capture and storage (CCS) technologies. Despite higher costs compared to nature-based solutions, CCS provides enhanced certainty in measuring and verifying carbon removal, a technology bet that investors favor. The acquisition demonstrates how well-capitalized firms are positioning themselves to lead in the CCS space, viewing it as critical for meeting global climate targets and facilitating a transition for carbon-intensive industries.
Navigating the Complex Landscape of Carbon Removal Technologies
While strategic moves by Global Thermostat and Aker Carbon Capture highlight the potential of technological carbon removal solutions, they also bring important considerations. Some stakeholders worry that focusing on carbon capture technologies might divert resources and attention from reducing fossil fuel consumption. Investments in CCS and DAC must complement broader efforts to decrease greenhouse gas emissions at their source.
These developments underscore the need for a balanced approach within VCMs. Technological advancements are crucial for addressing emissions that are hard to eliminate, but they should be part of an integrated strategy that also prioritizes emission reductions and energy transitions.
Implications for the Voluntary Carbon Market
The contrasting outcomes of companies like Running Tide and Nori compared to Global Thermostat and Aker Carbon Capture highlight the complex path ahead for VCMs. These experiences emphasize the need for robust financial strategies, technological validation, and adaptability to shifting market conditions. Companies can navigate consolidation by focusing on scalable, verifiable technologies and forming partnerships that enhance credibility.
Lessons from past market cycles like the dot-com and cleantech bubbles highlight the importance of standardization, regulatory adaptability, and realistic expectations. While consolidation may build some stability in the market by filtering out weaker players, lasting stability will come from stronger standardization and MRV frameworks, improved transparency, accessibility, and balanced strategies for sustainable growth. Understanding these dynamics is essential. By examining these developments, participants can better anticipate challenges and seize opportunities, enabling VCMs to emerge as resilient and effective tools in the fight against climate change.
Jockeying for Position – How Giants Shape Carbon Markets
As VCMs evolve, major corporations and financial institutions are leveraging their resources to shape this nascent industry in ways that align with their strategic interests. Companies like Airbus, Microsoft, Stripe, and Google are using carbon markets to drive change and advance their business objectives. Collaborative initiatives like the Frontier Buyers Group, pledging nearly $1 billion over the next decade, accelerate the development of scalable carbon removal technologies. While these efforts provide market certainty, foster innovation, and reduce costs, they also position these corporations to shape these rapidly evolving markets in ways that align with the companies’ visions for future growth.
Corporate leaders are not only purchasing carbon credits but also directly investing in technologies that complement their operations. Stripe and Shopify invest in carbon removal startups through programs like Stripe Climate and Shopify’s Sustainability Fund, enhancing their sustainability profiles and gaining early access to valuable technologies. ExxonMobil and Shell are advancing carbon capture and storage (CCS) technologies, potentially extending the viability of their fossil fuel assets under stricter regulations. Financial institutions like JPMorgan Chase and BlackRock play pivotal roles. JPMorgan's $200 million commitment to long-term removal credits signals confidence in carbon markets and may position the bank as a leader in carbon credit trading. BlackRock's $550 million investment into the Stratos direct air capture (DAC) facility aligns with its infrastructure strategies and could yield significant returns as demand for high-quality carbon removal increases.
Insurers like SwissRe reduce risks for carbon projects with innovative tools like forward carbon insurance and progressive carbon levies, unlocking capital for a variety of solutions. Platforms like Carbonplace, backed by nine global banks, enhance market transparency and accessibility, legitimizing VCMs and establishing these institutions as key players in carbon credit transactions.
Together, these corporations, financial institutions, and insurers are shaping VCMs by building infrastructure, investing in emerging technologies, and driving innovation. While contributing to global decarbonization strategies, they also strategically position themselves to influence market development in line with their business goals. Their collective influence sets higher industry standards, ensuring that VCMs can fulfill their potential as platforms to address climate change. However, it's crucial to scrutinize their motivations to ensure that the evolution of VCMs serves broader environmental objectives, not solely corporate interests.
Future Vision and Call to Action
Voluntary carbon markets are at a pivotal crossroads. The current phase of consolidation is filtering out unsustainable models, creating a stronger foundation for future growth. As these markets mature, they are poised to play an increasingly critical role in global climate strategies, transitioning from voluntary participation to integrated compliance frameworks. This evolution will internalize the true costs of greenhouse gas emissions, aligning economic incentives with the urgent need for decarbonization while safeguarding against the economic and environmental losses of inaction.
Recent policy initiatives and international agreements signal a significant shift toward standardized and transparent carbon markets. Governments are recognizing the value of VCMs as innovation incubators and are beginning to incorporate them into national and international climate policies. However, the fragility of progress is evident. A shift in U.S. leadership under figures like Donald Trump, who have previously rolled back climate initiatives, could stifle these advancements and weaken global climate leadership. Without decisive and sustained action, the U.S. risks ceding its position as a driver of innovation and accountability in the global climate arena.
Addressing the greenhouse gas externality will undoubtedly come with painful changes. Internalizing the true costs of emissions means higher prices, economic adjustments, and systemic transitions. Yet, these challenges today pale in comparison to the potential devastation of unchecked climate change—economic losses projected in the trillions, widespread environmental collapse, and worsening global instability. The sacrifices we make now are investments in a stable, livable future.
The challenges of consolidation are significant, but so are the opportunities. By embracing this transformative phase, stakeholders can help evolve VCMs into credible, impactful tools for addressing climate change. Rigorous standards and innovative technologies can enhance market credibility while driving the development of decarbonization solutions. Collaboration across sectors is essential. Businesses, governments, and consumers must work together to foster a market that not only survives but thrives, advancing the global transition toward a sustainable, low-carbon economy.
The time to act is now. This period of transformation offers a rare chance to redefine our approach to global warming, turning present challenges into catalysts for sustainable growth. By seizing this moment, we can build trustworthy and effective markets capable of achieving international climate goals, securing a resilient planet for generations to come.
