Benno Guenther, CEO and Founder of Blue Guardian Consulting is a specialised environmental and behavioural economics consulting firm based in London. Providing pricing, structuring and risk management solutions for international carbon offset projects and the energy transition, with a mission to contribute towards a more sustainable future.

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Frank van Beuzekom, COO of Net Positive Labs. A venture-building and strategy firm focused on creating scalable, market-based solutions in sustainability. The team has been actively engaged in the carbon markets domain across multiple fronts — from strategic advisory to venture development and ecosystem design. This includes work on initiatives such as Cambium, as well as collaborations with corporates, investors, and market participants seeking to navigate — and shape — the next phase of carbon markets.

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Executive Summary

Voluntary carbon markets have become a critical mechanism to address emissions that cannot be reduced directly. Yet, they are increasingly under scrutiny. Concerns around measurement, transparency, and incentives are not isolated issues — they are systemic.

This article argues that the challenge is not whether carbon markets should exist, but how they must evolve. The current system, built on fragmented data, inconsistent pricing, and misaligned incentives, is reaching its limits. At the same time, the integration of biodiversity, nature risk, and financial system dynamics is becoming unavoidable.

The next phase of carbon markets will not be defined by scale alone, but by credibility, comparability, and coherence. Those who understand this shift — and act on it — will shape the future of climate finance.

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The promise — and the pressure

For years, voluntary carbon markets have carried a dual narrative.

On one hand, they offer a pragmatic solution: a way to channel capital into emission reduction and removal projects across the world, especially where direct abatement is slow, expensive, or structurally constrained. They create a bridge between capital-rich actors and impact-rich geographies.

On the other hand, they have become a lightning rod for criticism. Headlines question whether credits represent real impact. Lawsuits emerge. Corporates retreat into silence. The market, once positioned as an accelerator of climate action, now finds itself defending its legitimacy.

But reducing this tension to “good vs bad projects” misses the point.

The issue is not flawed projects.
The issue is the system itself.

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A market moving through its first real test

To understand where carbon markets stand today, it helps to zoom out.

The past five years have followed a familiar — almost predictable — pattern. An initial wave of optimism saw voluntary carbon markets gain rapid traction, driven by net-zero commitments, corporate demand, and the promise of channeling capital into global climate solutions. By 2021, the market peaked at around $2 billion in value, with strong narratives around scalability and impact. 

But that momentum proved fragile.

From 2022 onwards, a series of high-profile investigations and controversies began to expose structural weaknesses. Studies suggested that many credits — particularly in avoidance-based and forestry projects — overstated their impact or failed to deliver additional emission reductions.
Cases involving major developers and methodologies, alongside accusations of greenwashing and even fraud in certain projects, brought these issues into the mainstream. 

The result was not an immediate collapse — but a loss of confidence.

Transaction volumes dropped sharply — by more than 50% in 2023 alone — while prices for lower-quality credits fell significantly. At the same time, broader macroeconomic pressures, shifting regulatory signals, and competing geopolitical priorities diluted corporate focus on voluntary offsetting. 

And yet, something more nuanced was happening beneath the surface.

Demand did not disappear. In fact, companies continued to retire record volumes of credits, signalling that the underlying need for carbon markets remains intact. What changed was behaviour: buyers became more selective, price divergence between high- and low-quality credits increased, and the market began to differentiate between what is credible and what is not. 

What we are seeing, therefore, is not a market in decline — but a market in correction.

A transition from hype to scrutiny, from volume to quality, and from narrative-driven growth to evidence-driven credibility.

In that sense, the current slowdown is not a failure.
It is a necessary phase in the maturation of the market.

Because the real test of carbon markets was never whether they could scale quickly —
but whether they could withstand scrutiny when they did.

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A system designed for complexity, not clarity

At its core, the voluntary carbon market is not a single market. It is a layered ecosystem of project developers, standards, verification bodies, registries, brokers, and buyers — each operating with their own incentives, constraints, and interpretations of “quality.”

Bringing a project to life requires navigating a process that is as intricate as it is expensive. From feasibility studies and methodology selection to project design documents and verification cycles, the journey is long, technical, and often opaque. Costs can easily exceed $100,000 before a single credit is issued.

And even then, understanding what has been created — and how — is far from straightforward.

As highlighted in the underlying work, documentation is often difficult to navigate, difficult to interpret, and even more difficult to challenge . This is not a minor usability issue. It is a structural barrier to transparency and accountability.

In a market that depends on trust, opacity is not just inconvenient — it is existential.

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Where integrity breaks down

The most persistent criticisms of carbon markets tend to converge around measurement. But measurement is only one piece of a broader puzzle.

Today, carbon credits are often derived from models built on sampling, assumptions, and static baselines. In forestry projects, for example, measurements may rely on a limited number of sampled trees, extrapolated across vast areas. In cookstove projects, usage assumptions may not reflect actual behavior over time. The result is a system where precision is implied, but uncertainty is embedded.

This would be manageable if incentives were aligned toward caution. They are not.

Verification bodies are typically paid by project developers. Standards compete for adoption. Credits are valued in part by their price — and lower prices often win. In such an environment, the system quietly rewards volume over rigor.

The consequence is subtle but profound:
the market produces what it incentivizes, not necessarily what the climate requires.

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Beyond carbon: the missing dimension

If the first wave of carbon markets was about tonnes of CO₂, the next wave will be about something broader — and more complex.

Financial institutions are increasingly recognizing that climate risk is inseparable from nature risk. Biodiversity loss, water stress, and ecosystem degradation are no longer externalities; they are material financial risks. Trillions of dollars in economic value depend directly or indirectly on nature.

And yet, the market still struggles to measure, price, and integrate these dimensions.

Projects often claim co-benefits — improved biodiversity, better health outcomes, enhanced livelihoods — but these are rarely quantified with the same rigor as carbon. They are bundled, narrated, and marketed, but not systematically measured or priced.

This creates a paradox.
The most valuable impacts are often the least visible in the system.

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A market in transition

Despite its flaws, the voluntary carbon market is not collapsing. It is evolving.

Technological advances are beginning to reshape what is possible. Satellite data, remote sensing, AI-driven analytics, and digital monitoring systems are enabling more continuous, more granular, and more transparent measurement. What was once estimated annually may soon be tracked in near real-time.

At the same time, new governance layers are emerging. Initiatives focused on integrity, standardisation, and disclosure are attempting to create a more coherent framework. Regulatory developments, particularly around Article 6 of the Paris Agreement, signal a gradual convergence between voluntary and compliance markets. While the carbon market remains fragmented, this convergence can also be seen in the context of CORSIA (which is the international aviation compliance framework) as well as integration of certain types of voluntary carbon credits in other compliance markets such as the EU-ETS or the South African carbon tax.

But perhaps the most important shift is not technological or regulatory. It is conceptual.

The market is moving from a mindset of offsetting emissions to one of managing risk, allocating capital, and enabling transition.

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This is not a scaling problem — it’s a credibility problem

The next phase of carbon markets will not be defined by volume.

It will be defined by whether the market can produce outcomes that are trusted, comparable, and defensible — across projects, geographies, and asset classes.

That shift will not be subtle.

We will likely see fewer credits, but those that remain will be held to a much higher bar. Data will become more abundant, but also more contested. Integration with financial systems will deepen — and with it, expectations around accountability, risk, and performance.

At the same time, carbon will stop operating in isolation.

Biodiversity, water, and broader system resilience will increasingly shape how projects are evaluated and how capital is allocated. The market will expand in scope — but narrow in what it accepts as credible.

And in doing so, its role will change.

From a mechanism that compensates for emissions,
to one that actively guides capital toward transition pathways that matter.