What the Carbon Price Tag Tells Us
The number that tends to stop people in a conversation about carbon credits is not the headline average — $6.34 per tonne, barely the cost of a pint in London — but the spread. On one end, a generic forest conservation credit trading at under a dollar. On the other, a direct air capture credit commanding $320 or more for the same unit of measure: one tonne of CO₂ kept out of the atmosphere. Same unit. Same stated purpose. Three-hundred-fold difference in price. That gap is not a market anomaly. It is the most honest signal the carbon credit world has produced in years.
What it tells you is that this is not one market. It is many, loosely connected by the same accounting unit and increasingly divided by a single question that the industry spent most of the early 2020s avoiding: does this credit actually do what it says?
A Market in the Middle of Itself
The carbon credit market today sits at an uncomfortable but clarifying juncture. The euphoric growth phase — when volumes swelled, standards were lax, and the mantra was essentially “more credits, more impact” — is definitively over. So too, arguably, is the crisis phase: the investigative reporting, the greenwashing scandals, the REDD+ methodology exposés that stripped confidence from a generation of forest conservation credits and sent prices spiralling downward between 2022 and 2024.
What remains is something harder to categorise and considerably more interesting. Sylvera’s data shows that voluntary market retirements fell 4.5% in 2025 to around 168 million tonnes, and dropped a further 8% year-on-year in Q1 2026. On the surface, that looks like contraction. But total market spending rose — to approximately $1.04 billion in 2025, up from $954 million the year before. Fewer credits retired, more money spent. The average price per credit edged upward even as volumes slid. This is not a market in retreat. It is a market shedding its least credible layer and concentrating value at the quality end.
The bifurcation is stark. Investment-grade credits rated BBB+ now represent 30% of new rated issuances and 62% of total rated market value — figures that stood at 13% and 31%, respectively, just two years ago. Their average price reached $20 in Q1 2026, whilst B-rated credits averaged $7.80, down from $8.50 a year earlier. High-quality credits are appreciating. Low-quality credits are being quietly abandoned. The market is not collapsing; it is self-selecting.
The Compliance Floor and What Sits Above It
To understand where prices come from, it helps to understand that carbon credits inhabit two distinct but increasingly overlapping universes: compliance markets, where participation is legally mandated, and voluntary markets, where it is not.
In compliance markets, the pricing logic is straightforward: governments cap total emissions and require regulated industries to hold allowances matching their output. The EU Emissions Trading Scheme remains the world’s dominant compliance carbon market, covering power generation, heavy industry, aviation, and — since 2024 — maritime transport. EU allowances ranged between €60 and €80 per tonne through 2025, with analyst projections pointing to just over €9o in 2026 and a credible path towards €100 or beyond as the supply cap tightens progressively through the decade. The UK operates its own equivalent post-Brexit scheme, and in a development that significantly altered the pricing landscape, the British government confirmed in May 2025 its intention to link the UK ETS with the EU ETS — a move that has already begun closing the price spread between the two systems and signals the most significant structural shift in British carbon pricing since the scheme was established.
The voluntary market is a different beast: looser, more diverse, more innovative, and considerably more volatile. Here, companies purchase credits by choice — to meet net-zero pledges, satisfy ESG reporting requirements, or manage reputational risk in an environment where climate claims face growing scrutiny. The range is extraordinary. At the bottom, generic avoidance credits — the kind generated by basic renewable energy projects or poorly verified REDD+ schemes — traded as low as $0.88 per tonne at points in early 2025. At the top, durable carbon removal credits from direct air capture or enhanced mineralisation projects command $320 per tonne or more. CORSIA-eligible credits, approved for use by airlines under the international aviation industry’s compliance framework, sit at around €19 per tonne — a middle tier that reflects the compliance-grade verification required to meet regulatory standards without the eye-watering price of engineered removal.
That aviation tier matters more than its modest headline suggests. Because CORSIA Phase 1 requires airlines to offset emissions above 85% of their 2019 baseline, carriers have become anchor buyers for high-integrity credits — and the gap between available supply and projected demand is genuinely alarming. Fully authorised emissions units eligible under CORSIA currently total 32.68 million, more than double the 15.84 million available in Q1 2025. Yet projected Phase 1 demand stands at 181 million credits ahead of the January 2028 compliance deadline. The arithmetic is not comfortable.
What the Credits Are Actually Made Of
Price dispersion makes more sense once you understand the underlying asset. Carbon credits are generated across an increasingly diverse range of project types, and the differences between them — in durability, credibility, and climate value — explain most of what drives the market’s quality stratification.
Forest conservation credits, historically the dominant category, are generated by protecting standing forests that would otherwise be cleared — a mechanism known as REDD+. At their best, these credits protect genuinely threatened ecosystems and deliver meaningful biodiversity and community benefits alongside the carbon claim. At their worst, which is where much of the controversy has lived, the baseline threat to the forest is exaggerated, the claimed reductions are illusory, and the credits represent precisely nothing in terms of atmospheric impact. The market has responded by increasingly differentiating within the REDD+ category itself: higher-rated credits have seen prices rise for three consecutive quarters, whilst lower-rated equivalents have stagnated. The name no longer provides cover.
Afforestation and reforestation credits — planting new trees on degraded or deforested land — offer a different profile. Prices in 2025 ranged from $2 to over $50 per tonne depending on certification standards and co-benefits, with the median clustering between $5 and $25. Nature-based solutions broadly account for nearly half of all voluntary carbon credit demand, and for good reason: they are often cheaper, faster to deploy at scale, and come bundled with biodiversity and community development benefits that pure engineering solutions cannot match. Their vulnerability remains non-permanence — forests burn, flood, and face political risk — which is why no serious carbon strategist recommends a portfolio built exclusively on them.
The category attracting the most capital, the most ambition, and the most stratospheric price tags is engineered carbon dioxide removal. Direct air capture — industrial facilities that chemically extract CO₂ directly from ambient air — is the poster child: capital-intensive, energy-demanding, and extraordinarily durable in its storage, but eye-wateringly expensive. Biochar, produced by heating organic material in oxygen-limited conditions, offers a more affordable entry into durable removal, averaging around $187 per tonne. Enhanced weathering, which accelerates natural geological processes that absorb CO₂, reaches approximately $349 per tonne. These prices are not a market inefficiency. They reflect the genuine cost of doing something that has never been done at scale: physically pulling carbon out of a warming atmosphere and keeping it there for centuries.
What is shifting the investment calculus is the long-term purchase agreement. In 2025, the total value of offtake deals — forward contracts committing buyers to purchase future removal credits — reached approximately $12.25 billion, up from roughly $4 billion in 2024. Companies like Microsoft and Google have been setting the tone, prioritising high-quality credits and locking in multi-year supply from engineered removal projects at average prices roughly three times higher than spot market deals. Nearly 40% of these high-durability removal offtake transactions were made by anonymous buyers — a phenomenon industry observers term “greenhushing,” wherein corporations quietly build carbon removal portfolios without the public commitments that invite scrutiny. It creates an opacity problem, but it also signals conviction: these buyers are hedging against a future in which high-quality removal credits are both scarce and expensive.
The Integrity Architecture
If there is one development that most defines the current state of the market, it is the construction of a credibility infrastructure that simply did not exist five years ago. The Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles, introduced in 2023, established a quality floor that credits must clear to receive a CCP label — covering additionality, permanence, measurement, and the avoidance of double-counting. The effect has been to create a visible quality tier within the voluntary market, giving buyers a mechanism for distinguishing credible credits from questionable ones without having to conduct their own due diligence on every project.
COP30, held in November 2025, added a further layer of structural architecture through progress on Article 6 of the Paris Agreement. The clarification of Article 6.4 mechanisms — governing internationally transferred mitigation outcomes between countries — matters because it addresses the double-counting problem at a sovereign level. When a project in, say, Kenya generates credits sold to a European corporate, the host country is now expected to make a corresponding adjustment in its own national accounting, ensuring the same tonne of carbon is not claimed twice. Twenty new bilateral Article 6 deals were signed in 2025, bringing the global total to over 100 agreements. The market is moving, albeit haltingly, towards a system in which the credit’s provenance and accounting are as important as its volume.
Industry Under Pressure
The sectors most exposed to carbon credit dynamics are not always those most prominently discussed. Energy and utilities remain the dominant buyers in compliance markets, accounting for approximately 63% of compliance market demand in 2025 — unsurprisingly, given that power generation is the largest single source of industrial emissions and the most directly regulated under ETS schemes. For utilities still operating gas-fired capacity, ETS allowance prices are no longer a peripheral compliance cost; they are a material driver of operating economics, one that is visibly accelerating investment decisions around renewable generation.
Heavy industry — steel, cement, aluminium — faces a dual pressure that is distinctive to this moment. Domestically, rising ETS costs squeeze margins on carbon-intensive production processes that cannot be rapidly decarbonised. Internationally, the EU’s Carbon Border Adjustment Mechanism, which became fully operational on 1 January 2026, means that exporters of covered goods into the EU must now purchase certificates reflecting the carbon price embedded in their products. For UK manufacturers exporting to European markets, this mechanism is already reshaping trade economics and adding urgency to the UK-EU ETS linkage discussion.
The financial services sector has moved from observer to participant in ways that are still working through the system. Carbon credits are increasingly treated as an asset class, with institutional investors, specialist funds, and trading desks all developing positions in both spot and forward markets. Digital registries and specialised exchanges have brought a degree of price transparency and liquidity that was absent from what was, not long ago, an opaque bilateral market dominated by bespoke deals. This institutionalisation is a net positive for market credibility, though it also introduces the complexity and occasional perversity of financial market dynamics into what remains, at its core, an environmental mechanism.
Where This Goes
The direction of travel is reasonably clear, even if the pace is not. The voluntary carbon market is projected to reach €3 billion in 2026 and potentially €15 billion by 2035, growing at a compound annual rate of just over 20%. The UK carbon credit market is forecast to grow significantly faster, driven by the expansion of compliance obligations and the anticipated integration of removal credits into domestic ETS frameworks in the latter half of the decade.
Compliance demand is the variable most likely to reshape the market’s fundamental dynamics. Sylvera modelling suggests compliance use could exceed voluntary purchases as early as 2027, driven by CORSIA Phase 1 and the progressive expansion of domestic ETS schemes to cover buildings, road transport, and small fuel users from 2027 onwards under EU ETS 2. By the mid-2030s, domestic compliance markets could be the single largest source of carbon credit demand globally. For a market that has historically been defined by voluntary corporate action, this is a fundamental shift in its centre of gravity.
The supply picture is the counterbalancing pressure. High-quality credits are structurally scarce. New issuances are not rising fast enough to meet demand for BBB+ rated credits. Carbon Direct’s analysis notes that over 80% of high-durability carbon removal capacity is at risk of not being realised without additional offtake commitments — a warning to corporate buyers who are still waiting for the market to mature before making long-term procurement decisions. The early movers who locked in removal supply in 2025 will almost certainly look well positioned by the end of the decade. Those waiting for prices to fall first are likely to be disappointed.
There are genuine risks embedded in this optimistic trajectory. Geopolitical uncertainty, regulatory fragmentation across jurisdictions, and the persistent challenge of credit quality verification at scale all create headwinds. The SBTi’s revised Corporate Net Zero Standard V2.0, when published, will clarify procurement expectations for the over 10,000 companies signed up to its framework — potentially a significant demand catalyst, or an equally significant constraint on how credits can be used. Renewables-based credits, once the dominant category, are facing an existential question: with their market share expected to fall from over 25% to just 2% within a decade as CCP eligibility standards tighten, their disappearance from credible portfolios will push average market prices upward and concentrate investment further towards nature-based and engineered removal solutions.
The fundamental logic of the carbon credit market — that pricing the cost of a tonne of CO₂ creates incentives to reduce, avoid, and remove it — has not changed. What has changed is the seriousness with which that pricing is now being done. A market where the same unit trades at $0.88 and $320 simultaneously is a market still resolving a basic question about what it is actually selling. The resolution of that question, driven by integrity frameworks, compliance pressure, and the hard economics of a warming planet, is the story of the next decade. The credits that survive it will be worth considerably more than the ones that do not.