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Experts generally optimistic about the carbon credit market in 2025. (Photo: iStock)
Global carbon emissions are expected to reach a new high in 2024, while the growth of the carbon credit market has stalled. However, the outlook for 2025 remains optimistic, as countries and companies continue to raise their emission reduction targets. Demand for carbon credits is expected to rise, though prices may face short-term pressure due to an oversupply. How will the carbon market develop in 2025?
1. Negative carbon technologies in focus
Due to concerns over greenwashing in voluntary carbon markets, there is increasing attention on decarbonization and carbon removal efforts. Both Deloitte and Wood Mackenzie mentioned in their year-end reports that while carbon credits derived from carbon removal tend to be priced higher, the market is progressively pursuing higher-quality credits. Additionally, carbon credit issuance bodies are establishing relevant methodologies, which are expected to drive the development of negative carbon technologies.
U.S. financial services company MSCI found that the proportion of carbon removal credits retired annually has grown from less than 20% of total retirements in the past to 30% in 2024. They project that by 2030, the value created by carbon removal credits could reach between $4 billion and $11 billion USD, potentially matching or even exceeding the value of emission reduction credits.
MSCI project that by 2030, the value created by carbon removal credits could reach between $4 billion and $11 billion USD. (Photo: Climeworks)
2. Oversupply of carbon credits keeps prices at low levels
The carbon price trend in 2025 is expected to continue to decline. According to data from the voluntary carbon market database AlliedOffsets, over 200,000 nature-based carbon credits were traded through long-term agreements, highlighting a shift from secondary market transactions to early-stage project investments. This trend is expected to add more carbon credits to the market.
AlliedOffsets believes that the voluntary carbon market will continue to experience an oversupply of credits, making it difficult for prices to rise and possibly causing further declines. After considering supply and demand factors, AlliedOffsets forecasts that the average carbon price will rise to $30 USD per ton by 2040.
3. Compliance carbon market expected to gain momentum
In the compliance market, Article 6 of the Paris Agreement, adopted at the United Nations Climate Summit (COP29), is expected to be a catalyst for growth in carbon credit trading. Notably, 2025 marks the update of countries' Nationally Determined Contributions (NDCs), which is expected to further clarify the feasibility of Article 6 provisions.
Article 6.2 allows for the transfer of emission reduction results through bilateral or multilateral agreements, requiring countries to establish clearer guidelines to facilitate more cooperation between nations. Meanwhile, the global carbon market envisioned under Article 6.4 is expected to launch in 2025, though full operation may not begin until 2026, according to Wood Mackenzie.
Source: AlliedOffsets, Wood Mackenzie, Deloitte, MSCI
