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The road to 1.5ºC: VCM needs action to scale missing $90bn investment by 2030

Aerial shot of a misty forest.

The voluntary carbon markets must scale rapidly to fill a $90 billion investment gap but confusion about standards, credit verification and impact credibility make this a significant challenge.

  • Research by Trove shows that although investment in the carbon credits market has increased rapidly to $36 billion, with $18  billion invested over the last couple of years – five times this amount is needed to meet climate goals by 2030 
  • The market remains hard to navigate, with buyers confused by the complexities of credits available and challenges such as carryover credits and concerns about inflated REDD+ carbon credits. 
  • The VCM requires greater transparency and standardisation, such as Verra’s recent announcements of new tools and processes to boost transparency and accountability.

Investment in carbon credit projects has been on a steady rise globally, totalling $36 billion between 2012 and 2022. Half of this has taken place in only the past three years, according to a new report Global Carbon Credit Investment from Trove Research, a specialist data, analysis and advisory firm focused on climate commitments and the VCM.

Carbon market growth is on an upward trajectory

Trove argues that with the $3 billion already invested in projects moving forward, this will deliver more than a thousand new carbon reduction projects, ranging from forest protection to carbon capture and storage, and will provide a growing stream of carbon credits that corporates can use in their decarbonisation efforts.  

Since 2020 more than 1,500 new carbon credit projects have been developed and registered with the five leading carbon registries. This represents an increase of about 160% in the rate of registration compared to the 2012-2020 period. These 1,500 new projects could save as much as 300 million tonnes of CO₂ a year, or roughly the same as the United Kingdom’s annual emissions. 

There is also significant growth in the number of new projects under development. As many as 1,500 more projects are being prepared (in addition to the 1,500 registered in the last 3 years), with a potential further carbon saving of around 500 million tonnes of CO₂ a year. This is large part due to the increase in the number of corporations setting net zero targets which will be met, up to a point, with carbon offset credits. Under the SBTI rules of course, not more than 5-10% of corporate emissions can be offset using credits.

Despite rising funding volume however, the current rate of investment is only one-third of the level needed to deliver the volume of credits required by 2030 to reach the 1.5ºC  goal under the Paris Agreement.  Current estimates suggest this target is however due to be surpassed this decade. The world also needs an additional $90 billion of capital to achieve the required volume of credits. 

Nevertheless, there are a number of challenges facing buyers navigating the VCM today, ranging from loopholes, opaque quality assessment of carbon credits, no standardisation and lack of information for fair pricing that form barriers to increased investment.

The political debate over carryover credits

While countries grapple with administrative loopholes that complicate emissions reductions plans, buyers can come across unreliable credits in the VCM. 

For example, the United Nations Framework Convention on Climate Change’s Kyoto Protocol established the carbon credit trading markets between countries, including mandatory greenhouse gas emission limits for industrialised countries. The credits traded were either emissions reductions units (ERUs) or assigned amount units (AAUs) under Joint Implementation (JI), the Carbon Development Mechanism (CDM) or emissions trading schemes like the EU-ETS. 

However, when the country achieves emissions reductions in excess of the Kyoto Protocol commitments, these credits can be carried forward to meet future emissions reduction targets – so-called ‘carryover’ credits. 

These credits have created controversy in Australia, and criticised as allowing reductions achieved in the past to count towards future targets, effectively reducing the need for present-day action. However, the Australian Minister for Climate Change and Energy announced in September that they are cancelling more than 700 million of these ‘carryover’ credits, in a move designed to prevent future governments from using them to meet emissions targets.  

Jenny McAllister, Assistant Minister for Climate Change and Energy said: “The Albanese Government is doing what we said we would – acting on climate change after a decade on denial and delay and chart a clear path to net zero. The cancelling of these credits is a clear milestone that shows the government is meeting its commitments.”

REDD+: The controversy around avoided deforestation continues

In the VCM, the most traded carbon credits are from nature-based solutions projects, and often focused on reducing deforestation or REDD+ (Reducing Emissions from Deforestation and Forest Degradation). Such credits account for almost a quarter of carbon credits on the VCM. According to Trove, 80% of the $18 billion funding into the VCM in the last three years has gone into forest management, reducing emissions from deforestation and forest degradation. This includes avoided deforestation.

Verra’s Verified Carbon Standard, one of the most used carbon standards globally has itself been subject to controversy, as in January 2023,  a months-long investigation by the Guardian, SourceMaterial and Die Zeit on Verra reported over-crediting of 92%, where projects are said to have issued 13 times more credits than their climate benefit. Verra has refuted this claim. 

While there are reasonable responses in a discussion about different methodological approaches, the need for the markets to evolve as they more, it appears the controversy continues.

A recent study by the UC Berkeley Carbon Trading Project, a research and outreach programme dedicated to studying the effectiveness of carbon trading and offset programs also assessed Verra’s REDD+ credits and found what it called “highly inflated, unreliable carbon credits and failed safeguards for vulnerable forest communities, sometimes even leading to their displacement.” 

Barbara Haya, a director of the Berkeley Carbon Trading Project, UC Berkeley said: “Our research shows that the project type with the most credits on the voluntary carbon market, avoided deforestation, generates highly inflated credits that put forest communities at risk. An entirely different approach is needed to reduce deforestation and cut emissions.

“One key reason for pervasive poor quality with avoided deforestation carbon crediting is perverse incentives. All participants in the carbon market benefit from more credits.” The study found these credits ‘ill-suited’ for specific carbon offsets, partly due to the inherent uncertainty of baseline and leakage impacts.

The report said it found ‘widespread’ and ‘significant’ over-crediting across all quality factors, with most credits created from unrealistically low estimates of leakage and durability risk, unrealistically high baselines and high estimates of carbon stock in forests.

The study also criticised REDD+ credits for fundamentally not being designed to address the most important commercial causes of deforestation such as large-scale agriculture, cattle ranching, logging and mining. his emphasises the systemic challenge inherent in such approaches. The report argued that the unreliability of the impact was due to the approach of Verra in offering project developers significant flexibility in performing emissions reduction estimates and applying safeguards. T

The problem is that there is a still a need for finance to flow towards the protection of forests. Inigo Wyburd, policy expert in Global Carbon Markets at Carbon Market Watch says: “Companies need to move away from claiming that the offsetting with REDD+ credits is equivalent to reducing emissions inside their value chain. This being said, it is essential that companies still channel finance towards the conservation of forests.

“Measuring the impact of this financing, ensuring that the money reaches the mitigation activities, and preventing companies from misusing this to deceive the public about their own levels of climate ambition are some of the building blocks of a more sustainable approach.” He explained that for example, companies could claim their investment in forest conservation as a contribution rather than an offset. This is another challenge for the market to be able to explain to buyers – and for them to explain to stakeholders.

Upgrading carbon credit methodologies is necessary

Verra said they welcomed the scrutiny of the VCM and gave a detailed response to the report on the Verra website. The difficulty comes when buyers don’t understand the technical details of the carbon markets and misrepresent what is actually happening on the ground. 

Buying inflated carbon credits to sell ‘carbon neutral’ products for investments and consumers ultimately means the lack of any significant effect on limiting climate change. As buyer trust is central to boosting investment in the market to meet the $90 billion investment, the focus should be on boosting carbon credit quality and transparency.  For example, Wyburd recommends that market participants such as intermediaries should make their fees and markups public to improve transparency. 

According to a Verra spokesperson: “It is important to note that the vast majority of findings and recommendations from this research align with extensive and systematic work to update the Verified Carbon Standard (VCS) Program that has been carried out by Verra over the last two years.”

Verra is now undertaking large-scale efforts to upgrade its carbon credit assessment methodology across three thematic areas: operational excellence, enhanced program integrity and impact and accountability.

In September 2023,  it announced a range of new initiatives and tools, including a multi-year digitalisation initiative to increase transparency and efficiency, a digital project submission tool for all Verra standards, an independent research initiative, targets for Service-Level Agreement Processes and more. 


The lack of transparency and the risk of inflated credits and greenwashing are posing as barriers to increasing investment in the VCM. To meet investment targets for the climate goals, the industry must build stringent and more transparent, standardised carbon credit development and assessment methodologies to ensure high-quality, valid credits sold that positively impact climate change efforts. 

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