Global Carbon Credits Market by Type (Regulatory and Voluntary), System (Cap-and-Trade and Baseline-and-Credit), End-use Industry (Aviation, Energy, Industrial, Petrochemical, and Others), and Region (North America, Europe, Asia-Pacific, and LAMEA): Opportunity Analysis and Industry Forecast, 2023-2032

Carbon Credits Overview

Carbon credits allow the owner of any company including energy, industrial, petrochemical, manufacturing, and other companies to emit a certain amount of carbon dioxide. Carbon credits are permits that allow the companies to emit carbon dioxide and greenhouse gases to some extent. The company can also sell their unneeded or excess credits to other companies that can help them in making money. Carbon credits are a crucial part of the carbon market and are made to encourage and finance initiatives that aid in reducing climate change. The idea behind carbon credits is to reduce the harmful carbon emissions into the environment. Thus, carbon credits help in removing, reducing, or avoiding greenhouse gas emissions to some extent.

Global Carbon Credits Market Analysis

The global carbon credits market size was $2,000.0 million in 2022 and is predicted to grow with a CAGR of 55.5%, by generating a revenue of $143,530.6 million by 2032

Source: Research Dive Analysis

COVID-19 Impact on Global Carbon Credits Market

The COVID-19 pandemic led a high level of volatility and uncertainty into the financial markets, including carbon credit market. Investors and market participants became cautious, leading to increased price volatility. Uncertainty about the future economic recovery and the long-term impact on emissions further contributed to market fluctuations. The pandemic disrupted many ongoing carbon emission reduction projects. Restrictions on travel, supply chain disruptions, and financial constraints led to delays or cancellations of carbon projects that help in achieving environmental sustainability. This, in turn, affected the issuance of new carbon credits and limited the availability of credits in the market. As people were compelled to stay at home during the COVID-19 pandemic and certain industries, like mining, construction, and textiles, were forced to close for a while, there was a decrease in carbon dioxide and other greenhouse gases. China reduced its carbon emissions by 25%, or about 200 million tons of CO2 (MtCO2), in February 2020, compared to the same month in 2019, according to the Organization for Economic Co-operation and Development (OECD). In addition, the pandemic disrupted the world supply chains, including those for renewable energy projects, which delayed or stopped their completion.

Post-pandemic, the carbon credits market is growing at a significant pace as global temperatures are rising rapidly owing to growing carbon emissions. Many countries across the world such as China, Japan, South Korea, and others are focusing on reducing carbon emissions with the help of several initiatives such as carbon credits which includes carbon pricing instruments (CPIs), emission trading systems (ETS), and others that play a vital role in low carbon development pathways. For instance, as of September 2021, there were 16 countries in Asia-Pacific that are at different stages of developing and implementing national & subnational emission trading schemes and implementing a carbon tax. Furthermore, the increasing cost of carbon-intensive activities such as the burning of fossil fuels has paved the way for low-carbon or no-carbon energy sources. Thus, post-pandemic the carbon credits industry is anticipated to flourish rapidly across the world.

Rising Concerns Over Environmental Pollution to Drive the Market Growth

The number of greenhouse gases that businesses are allowed to emit has been capped as part of global government regulations to reduce carbon emissions. As businesses attempt to comply with these regulations, demand for carbon credits increases. Numerous businesses have established sustainability objectives and are actively looking for ways to lower their carbon footprint. One way for them to offset their emissions and meet their sustainability goals is to buy carbon credits. The burning of fossil fuels, emissions from automotive vehicles, increase in greenhouse emissions from factories, manufacturing plants such as oil & gas industry are leading to negative environmental impact. Therefore, many businesses across the globe are anticipated to buy carbon credits. These factors are anticipated to boost the carbon credits market share in the upcoming years.

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Carbon Credits do not Represent Actual Reduction of Carbon which is Anticipated to Restrain Market Growth

Carbon credits can be harmful to some extent as they do not represent the actual reduction of carbon emissions by the business or an individual. For instance, with the help of carbon credits, businesses or individuals can still produce carbon emissions and those emissions are offset with the help of initiatives such as reforestation. Also, carbon credits are expensive and small businesses may find it difficult to purchase these credits compared to large businesses that have significant operating budgets. These factors are anticipated to restrain the carbon credits market demand in the upcoming years.

Rising Awareness Among Businesses to Reduce Carbon Footprint is Anticipated to Generate Excellent Opportunities

Businesses across the world are adopting several sustainable initiatives to lower the negative environmental impact. Also, businesses can save money by lowering their carbon footprint through energy efficiency, renewable energy, and other low-carbon practices. This is because companies are allowed to sell their excess carbon credits to other companies that help them in generating significant revenue. This can be especially beneficial for companies in high-carbon industries like energy, transportation, and manufacturing. In addition, companies can also increase their brand reputation with the help of carbon credits. For instance, companies that buy carbon credits can boost their brand reputation by demonstrating their dedication to sustainability. This can help attract environmentally conscious customers, investors, and employees.

To know more about global carbon credits market opportunities, get in touch with our analysts here.

Global Carbon Credits Market Size, by Type, 2022

Source: Research Dive Analysis

The regulatory sub-segment accounted for the highest market share in 2022. The policies, regulations, and rules put in place by governments or other international organizations to control the production, exchange, and use of carbon credits are considered under regulatory carbon credits. Regulatory carbon credits offer strong financial incentives for organizations to minimize carbon emissions. Regulatory carbon credits are economically favorable for companies as they help in investing in cleaner technologies and sustainable technologies. Carbon credits facilitate international cooperation that can tackle climate change with low-cost emission reduction. With these regulations, the carbon market will be held to a higher standard of accountability, credibility, and environmental integrity. Regulatory carbon credits facilitates regular reporting, monitoring, and verification of carbon credits. Governments often set emission reduction targets as part of their climate change mitigation strategies. The regulatory framework sets the overall direction and ambition for emission reductions, providing a basis for carbon credit market regulations.

Global Carbon Credits Market Share, by System, 2022

Source: Research Dive Analysis

The cap-and-trade sub-segment accounted for the highest market share in 2022. The cap-and-trade system entails placing a cap or limit on the overall greenhouse gas emissions permitted within a given region or industry. Cap-and-trade establishes a market-based system in which emission permits or allowances are distributed among entities subject to the cap or traded among them. The cap is typically established in accordance with other policy goals or emission reduction targets. It facilitates the shift to a low-carbon economy and sends a clear message for emission reductions. The benefits of cap-and-trade system is that this system offers incentives to companies for investing in clean energy technologies that helps in minimizing the carbon emissions. Also, cap-and-trade systems allow flexibility to the companies with regards to the limits on carbon emissions. For instance, if any company faces challenges in emission reduction then they can purchase additional credits to meet the compliance requirements. Also, companies can sell their additional or excess carbon credits to the other companies.

Global Carbon Credits Market Demand, by End-use Industry, 2022

Source: Research Dive Analysis

The industrial sub-segment accounted for the highest market share in 2022. The specific sector of the carbon market that includes industrial activities and processes accountable for greenhouse gas emissions is referred to as the industrial segment. Addressing industrial emissions is essential for effective environmental change mitigation because they are a major source of global greenhouse gas emissions. For instance, businesses like pulp and paper, steel, chemicals, steel, cement, and others comes under industrial sector that are major buyers of carbon credits. These sectors frequently use energy-intensive processes and produce large amounts of greenhouse gas emissions. Industrial entities are typically required to accurately measure, monitor, and report their greenhouse gas emissions. Quantifying emissions from particular industrial processes, energy use, and other pertinent activities are all part of carbon credits.

Global Carbon Credits Market Size & Forecast, by Region, 2022-2032 ($Million)

Source: Research Dive Analysis

The Asia-Pacific carbon credits market generated the highest revenue in 2022. Asia-Pacific has the highest potential for producing carbon credits owing to the presence rapidly expanding manufacturing, oil & gas, and chemicals industries that account for higher carbon emissions. The region is anticipated to experience the highest growth in terms of the volume of carbon credit supply during the forecast period, led by major developing countries like China and India. Addressing emissions in these countries is crucial for efforts to reduce global climate change. Countries in Asia-Pacific have implemented a range of policies and programs to fight climate change and reduce emissions. These include various legal frameworks, carbon pricing plans, targets for renewable energy, initiatives and programs promoting energy efficiency, and others. Countries have used various strategies depending on their particular priorities and circumstances. Also, Asia-Pacific is a major manufacturing hub with the presence of large number of chemical, oil & gas, and industrial companies. As carbon credits are considered to be the potential solution for climate change, its popularity across the region is increasing rapidly.

Competitive Scenario in the Global Carbon Credits Market

Investment and partnership are common strategies followed by major market players. For instance, in April 2023, Kosher Climate India Pvt. Ltd., the leading company that focuses on sustainability, collaborated with Etrio, the leading electric vehicle manufacturer, for creating & developing the carbon credits framework to minimize the greenhouse emissions.

Source: Research Dive Analysis

Some of the leading carbon credits market players are South Pole, 3Degrees, EKI Energy Services Ltd, TerraPass, NATUREOFFICE, Moss.Earth, Climate Impact Partners, Carbon Credit Capital, LLC, CarbonBetter, and NativeEnergy.