Alongside deep and rapid reductions in greenhouse gas emissions across all sectors, the IPCC estimates that 6 to 10 gigatonnes (Gt) per year of carbon dioxide removal will be required by 2050 in order to avoid reaching 1.5 °C of temperature growth, and over 1 gigatonne of removals per year will be needed by 2030. The voluntary carbon market is an important tool in bringing carbon dioxide solutions to scale.
According to a report released today by Carbon Direct, buying by quality-oriented, removals-focused purchasers of carbon credits increased fivefold from 2021 through the first three quarters of 2023, from 3.1 million tonnes to 15.1 million tonnes. At the same time, the analysis found that decreases in REDD+ and renewable energy volumes have driven a drop in issuances and retirements in the voluntary carbon market. Credit issuances—a key indicator of market supply—are on pace to decline by 7% between 2021 and 2023. Retirements—a key indicator of demand—are projected to drop by nearly 25% over the same time period. REDD+ projects in particular have received a significant amount of scrutiny over the past year from outlets including The Guardian and The New Yorker.
These and other insights into the trends shaping the voluntary carbon market in 2023 can be found in the 2023 State of the Voluntary Carbon Market. In compiling the report, Carbon Direct analyzed data from the four largest voluntary carbon credit registries, the developing high-durability registries, and Carbon Direct’s in-depth evaluations of hundreds of carbon projects to identify market trends.
The 2023 voluntary carbon market by the numbers
Quality remains a key challenge across the market. Within the hundreds of projects that Carbon Direct has analyzed for procurements across all project types, fewer than 10% of projects meet or exceed our standards for highest quality.
REDD+ and renewable energy credits have fallen nearly 20% as a share of total issuances from 72% in 2021 to 53% in 2023.
With the inclusion of REDD+ and renewable energy credits, reduction and avoidance credits account for 90% of all credits on the VCM.
Credits from projects that generated a mixture of removal and reductions make up 7% of issuances. Credits from projects generating only removals remain a minority at 3%.
The volume of retirements for carbon removal credits held steady at around eight million retirements for 2021 and 2022.
A review of spot and forward purchases from tracked quality-oriented, removals-focused buyers shows a fivefold increase in demand from 2021 to the third quarter of 2023.
Growth in carbon dioxide removal
While the volumes of reduction and avoidance credits decreased, the volume of retirements for carbon removal credits held steady at approximately eight million retirements for 2021 and 2022. Issuances have been more complex, growing eightfold overall from 2016 to 2022, but with an up-and-down trajectory, including in the past year.
However, the true velocity of the removals market comes through in annual purchases, (many of which, as forward purchases, don’t yet appear on the registries). In the first three quarters of 2023, quality-oriented buyers have purchased 15.1 million tonnes of credits through spot market and forward purchase agreements—a nearly five-fold increase in annual offtake agreements since 2021.
The role of buyers in the voluntary carbon market
Informed buyers play an important role in the quality, supply, and composition of carbon credits, providing the demand signal, and often the direct financing, to activate projects. By focusing on projects that can demonstrate quality, these buyers can influence the composition and direction of the market to drive greater impact. More financing will be especially important as our climate outlook demands the growth of more than 1,000 times the high-quality carbon removal solutions that are available today.
Today, a few organizations are driving most of the demand for high-durability projects. Microsoft’s Ørsted forward purchase agreement to procure 2.76 million tonnes over 11 years represents more than 80% of all high-durability tonnes contracted for in 2023. AirBus’ forward agreement for 400K tonnes of direct air capture (as reported in this press release) made up over 60% of high durability tonnes contracted for in 2022. Together, these two agreements make up over 80% of tracked high-durability tonnes contracted across 2022 and 2023.
While the volumes of dedicated procurement remain concentrated, the overall number of buyers continues to grow. According to the cdr.fyi database, individual buyers for durable hybrid and engineered credits have grown from 0 in 2018 to greater than 90 in 2022. Should this trend continue, the voluntary carbon market stands to play an important role in rapidly scaling durable carbon removal.
The fivefold increase in purchasing by quality-oriented, removals-focused buyers indicates an important shift in the market. Despite substantial media and academic scrutiny over the past year, the voluntary carbon market remains a critical tool in bringing carbon dioxide removal to scale.