The global carbon credit market, valued at USD 470.11 billion in 2023, is anticipated to grow at a CAGR of 39.71%, reaching approximately USD 13,321.67 billion by 2033.
The demand for carbon credits has surged in recent years, driven by government policies and regulations designed to curb greenhouse gas (GHG) emissions. Companies subject to these regulations often need to buy carbon credits to offset their emissions and comply with these requirements. In India, the government introduced the Energy Conservation Bill, 2022, paving the way for the establishment of carbon credit markets. Globally, market growth is mainly fueled by state-level initiatives and voluntary markets.
In the U.S., voluntary carbon markets are growing, where companies can purchase carbon credits to reduce their carbon footprints, even if not legally obligated to do so. Though smaller than markets in other regions, such as Europe, the U.S. market is expanding and could play a more significant role in mitigating GHG emissions. This growth aligns with businesses’ increasing focus on sustainability and corporate social responsibility.
The rising concern about climate change has further driven demand for carbon credits. However, the market faces challenges, including price volatility, which can make it difficult for companies to plan long-term. The fluctuating prices of carbon credits complicate efforts to ensure they offer sufficient financial incentives for emission reductions.
Carbon Credit Market Report Highlights
- Europe region has accounted revenue share of 89.10% in 2023.
- By type, the compliance segment has captured revenue share of 97.40% in 2023.
- By end user, the power segment has generated revenue share of 22.60% in 2023.
Market Concentration & Characteristics
Emerging economies and businesses are increasingly interested in carbon credit trading. For example, in June 2023, Olayan Financing Company, a Saudi Arabian investment firm, participated in the largest carbon credit auction in Nairobi, Kenya, which sold over 2 million tons of high-quality carbon credits to 16 companies in Saudi Arabia.
Emission Trading Schemes (ETS) are key to fostering economic growth and reducing carbon emissions, particularly in emerging economies like China and India. China’s government reported that the daily weighted average price of China Emission Allowances (CEAs) in 2022 was USD 8.34/mtCO2e, up from USD 7.35/mtCO2e in the previous year. This price increase is expected to drive the shift toward greener economic practices.
Carbon Credit Market Regional Insights
North American Carbon Credit Market Trends
The growth of the North American carbon credit market is driven by a mix of government programs and voluntary markets. Several U.S. states have implemented cap-and-trade programs, limiting the total amount of greenhouse gas emissions allowed within the state, which forces companies to purchase carbon credits to offset their emissions.
U.S. Carbon Credit Market
The U.S. carbon credit market is poised for substantial growth due to rising GHG emissions linked to increased energy demand from industries such as power, aviation, and chemicals. The U.S. Environmental Protection Agency (EPA) reported that total U.S. GHG emissions in 2021 were 6,340.2 million metric tons of CO2 equivalent, a 6.8% increase in CO2 emissions from fossil fuel combustion compared to 2020. The growth in energy consumption, especially in HVAC systems, and the rising demand for electricity due to population growth is expected to drive the need for GHG control measures, thus increasing the demand for carbon credits.
European Carbon Credit Market
Europe’s carbon credit market accounted for 89.26% of the global market share in 2023, driven by the EU Emissions Trading System (ETS), which is the largest carbon market worldwide. Established in 2005, the EU ETS covers over 11,000 installations across 31 countries and accounts for around 45% of the EU’s GHG emissions. The price of carbon credits in the EU ETS fluctuates according to supply and demand, economic conditions, energy prices, and climate policies.
The UK carbon credit market holds the largest share of 38.39% in Europe, bolstered by government schemes aimed at reducing emissions. The UK Emissions Trading Scheme (UK ETS) applies to energy-intensive industries like power generation and aviation. Meanwhile, Italy is expected to experience the fastest growth in its carbon credit market, with an estimated compound annual growth rate (CAGR) of 41.2% from 2024 to 2030, driven by its emission reduction targets.
Asia Pacific Carbon Credit Market
In Asia Pacific, countries like China and India, with rapidly growing economies, are expected to see an increase in fossil fuel demand for energy generation, leading to higher carbon emissions and, consequently, a boost in the carbon credit market.
China dominates the Asia Pacific market, accounting for 59.12% of the share in 2023. The growing demand for carbon sinks driven by urbanization and construction activities is expected to support further market growth. Australia’s carbon credit market is expected to grow at a CAGR of 46.4% from 2024 to 2030 due to rising GHG emissions, primarily from the transportation sector.
Central & South America Carbon Credit Market
In Central and South America, demand for carbon credits is increasing due to growth in power generation, industrial development, and infrastructure. Brazil holds the largest share of 72.13% in the region, driven by increasing carbon removal projects aimed at achieving carbon neutrality.
Middle East & Africa Carbon Credit Market
Countries in the Middle East and Africa, such as the UAE and Saudi Arabia, have committed to reducing their GHG emissions through international agreements like the Paris Agreement. These countries are actively investing in carbon credit projects to meet their sustainability goals.
The UAE leads the region with an 82.15% share of the carbon credit market in 2023. However, GHG emissions are expected to rise in the near future due to increased fossil fuel production. Saudi Arabia’s carbon credit market is also set to grow as the country seeks to mitigate emissions from its oil refineries and meet its sustainability targets.
Key Carbon Credit Company Insights
Leading companies in the carbon credit market are adopting strategies like product development, mergers & acquisitions, and joint ventures to maintain and expand their market share. Notable players include WGL Holdings Inc., EKI Energy Services Ltd., NativeEnergy, ClearSky Climate Solutions, and 3Degrees Group, Inc.
- March 2024: Toucan introduced the world’s first string PV inverter market for biochar carbon credits to address rising carbon credit demand.
- January 2024: EKI partnered with Jospong Group to generate up to USD 1 billion in carbon credits in Ghana.
- December 2023: ACX collaborated with CT Group to explore carbon credit opportunities in Vietnam.
- July 2023: JSW announced plans to expand its carbon credit portfolio by adding new renewable energy and green hydrogen production initiatives.
Top Companies in Carbon Credit Market
- Verra
- Gold Standard
- Carbon Trust
- Climeworks
- Carbon Clean Solutions
- NativeEnergy
- Ecologi
- South Pole
- Verde Impact
- Pachama
- EcoAct
Market Segmentation
By Type
- Voluntary
- Compliance
By Project Types
- Forestry Projects
- Renewable Energy Projects
- Energy Efficiency Projects
By Regulatory Framework
- Cap-and-Trade System End
- Offsets and Credits
By Source
- Technology Based
- Biomass
- Forest Based
- Sewage Treatment Plants
- Wastewater Treatment Plants
By Selling Platform
- Direct Contact
- Climate Exchange Platforms
By Business Size
- Small and Micro Enterprises
- Medium and Large Businesses
By End User
- Power
- Energy
- Aviation
- Transportation
- Buildings
- Industrial
- Others
By Region
- North America
- APAC
- Europe
- LAMEA
