The global carbon credit market, valued at USD 656.8 billion in 2024, is projected to grow to approximately USD 13,321.67 billion by 2034, reflecting a robust compound annual growth rate (CAGR) of 39.71% from 2025 to 2034.
The demand for carbon credits has seen significant growth in recent years, driven by various government policies and regulations aimed at reducing greenhouse gas (GHG) emissions. Companies subject to these regulations may need to purchase carbon credits to offset their emissions and ensure compliance. In India, the government passed the Energy Conservation Bill in 2022, paving the way for the establishment of carbon credit markets. Globally, the market’s expansion is largely fueled by a mix of state-level initiatives and voluntary markets.
In the United States, voluntary carbon credit markets also exist, allowing companies to offset their emissions, even if not mandated by law. These voluntary markets, while smaller than those in regions like Europe, are growing and could play a more prominent role in reducing GHG emissions in the future. As businesses increasingly focus on sustainability and reducing their carbon footprints, the demand for carbon credits continues to rise. Furthermore, heightened awareness of climate change and its potential impacts is contributing to this growing demand. However, the market faces challenges, notably the price volatility of carbon credits, which can fluctuate based on demand and supply. This variability makes it difficult for companies to plan long-term and ensures that the price of carbon credits offers a sufficient financial incentive for emission reductions.
Key Takeaways
- Europe region has accounted for revenue share of 89.10% in 2023.
- By type, the compliance segment has accounted for revenue share of 97.40% in 2023.
- By end user, the power segment has accounted for revenue share of 22.60% in 2023.
Type Insights
The carbon credit market is divided into two main categories: compliance and voluntary. In terms of revenue, the compliance segment accounted for 98.80% of the market share in 2023. The compliance carbon credit market involves companies and organizations regulated by government authorities, who are required to offset their carbon emissions by purchasing credits representing reductions in GHG emissions from approved projects like renewable energy and energy efficiency initiatives.
Governments worldwide are implementing regulations to combat climate change, and these often mandate carbon offset purchases. These policies are expected to continue driving the growth of the compliance carbon credit market. Carbon credits also serve as financial incentives, encouraging companies to invest in low-carbon technologies and projects. By purchasing credits and reducing their emissions, companies can lower their exposure to carbon taxes and other related costs.
Project Type Insights
The market can also be broken down by project type, which includes removal/sequestration and avoidance/reduction projects. The avoidance/reduction projects segment was the dominant segment in 2023, accounting for 66.45% of the total revenue. These projects focus on strategies to reduce or avoid carbon emissions through energy efficiency improvements and the initiation of renewable energy projects. A report from the World Meteorological Organization (WMO) published in May 2023 indicated a 66% likelihood that the global near-surface temperature will rise at least 1.5°C above pre-industrial levels by 2027, primarily due to GHG emissions.
End-use Insights
The market is further segmented by end-use industries, including energy, power, transportation, buildings, industrial sectors, and others. In 2023, the power segment emerged as the largest, accounting for 31.09% of the market revenue. The “others” segment includes agriculture, forestry, and waste. The energy sector is a major contributor to carbon emissions, and many companies are adopting carbon offsetting schemes to mitigate their environmental impact. Renewable energy sources like solar, wind, and geothermal are being adopted to reduce emissions and generate carbon credits. These credits can then be sold on the open market for additional revenue. Carbon offsets are a market-based tool to help mitigate GHG emissions, particularly in sectors like energy and industry, where emissions are significant.
In industries such as manufacturing, chemical production, and steel production, carbon dioxide emissions are released as byproducts. The International Energy Agency (IEA) reported that CO2 emissions from primary chemical production amounted to about 935 Mt in 2022.
Regional Insights
The North American market for carbon credits is growing due to a combination of government programs and voluntary markets. Many states have introduced cap-and-trade programs that limit the total amount of greenhouse gas emissions, forcing companies to buy credits to offset their emissions.
U.S. Carbon Credit Market Trends
The U.S. carbon credit market is poised for significant growth in the coming years. Rising GHG emissions in industries like power, aviation, and chemicals are contributing to this trend. According to the U.S. Environmental Protection Agency (EPA), total U.S. GHG emissions reached 6,340.2 million metric tons of CO2 equivalent (MMT CO2 Eq) in 2021, with a 6.8% increase in CO2 emissions from fossil fuel combustion compared to 2020. The energy sector, with its reliance on coal, natural gas, and fossil fuels, contributes significantly to these emissions. With growing energy demand and population growth, there is an increasing need for GHG control measures, suggesting that the carbon credit market will continue to expand.
Europe Carbon Credit Market Trends
Europe’s carbon credit market held the largest revenue share, 89.26%, in 2023. The European Union’s Emissions Trading System (ETS), which began in 2005, is the world’s largest carbon market, covering over 11,000 installations in the power and industrial sectors across 31 countries. These installations are responsible for about 45% of the EU’s GHG emissions. The price of carbon credits in the EU ETS is determined by supply and demand, with fluctuations influenced by factors such as economic conditions, energy prices, and climate policies.
The UK accounted for the largest share (38.39%) of Europe’s carbon credit market in 2023, owing to strong government initiatives aimed at reducing emissions. The UK Emissions Trading Scheme (UK ETS) applies to energy-intensive industries, such as power generation and aviation.
Italy is projected to see the fastest growth in the carbon credit market, with a compound annual growth rate (CAGR) of 41.2% from 2024 to 2030. The country’s emission reduction goals—targeting a 38% reduction below 2005 levels by 2030—are expected to drive market growth.
Asia Pacific Carbon Credit Market Trends
Asia Pacific, which includes rapidly growing economies like China and India, is expected to experience increased demand for carbon credits due to rising fossil fuel consumption. China led the region, with a 59.12% market share in 2023. As construction and building activities continue to grow, demand for carbon sinks is also rising, further driving market growth.
Australia’s carbon credit market is projected to grow at a CAGR of 46.4% from 2024 to 2030 due to rising GHG emissions. A report from the Australian government indicated that the country’s emissions reached 465.9 million tons of CO2 equivalent in 2022, with most emissions stemming from the transportation sector.
Central & South America Carbon Credit Market Trends
In Central and South America, the demand for carbon credits is expected to rise due to increased power generation, industrial growth, and infrastructure development. Brazil dominated the market in 2023, accounting for 72.13% of the region’s carbon credit market share, driven by efforts to achieve carbon neutrality through carbon removal projects.
Middle East & Africa Carbon Credit Market Trends
Countries like the UAE and Saudi Arabia, which are signatories of international GHG reduction agreements such as the Paris Agreement, are actively working to reduce their emissions. Investments in carbon removal projects are helping boost the region’s carbon credit market. The UAE, with a market share of 82.15% in 2023, is seeing rising GHG emissions, but government efforts to address climate change are driving growth in the carbon credit market. Similarly, Saudi Arabia’s carbon credit market is expected to grow significantly due to increasing oil production and efforts to mitigate emissions.
Key Carbon Credit Company Insights
- In March 2024, Toucan launched the first string PV inverter market for biochar carbon credits in response to rising carbon credit demand.
- In January 2024, EKI and Jospong Group partnered to generate up to USD 1 billion in carbon credits in Ghana.
- In December 2023, ACX partnered with CT Group to explore carbon credit market opportunities in Vietnam.
- In July 2023, JSW announced plans to expand its carbon credit portfolio through new projects, including solar module manufacturing, energy storage, and green hydrogen production, set to be completed by 2025.
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