Voluntary Carbon Markets: Crucial Climate Strategy or Fraudulent Practice Perpetuating Inequality?

Written by: Owen Casey

Edited by: Ashley Yeung

With the enactment of the Kyoto Protocol in 1997, the recognition of carbon markets as a legitimate method to reduce carbon dioxide emissions was born. The protocol established a compliance carbon market, the type of carbon markets dictated by policy or regulation, and laid the groundwork for the future proliferation of voluntary carbon markets (VCMs), the type of carbon markets driven by corporate and individual climate commitments. Ever since the Kyoto Protocol, VCMs have been embraced in international climate policy and corporate governance. For instance, Article 6 of the Paris Agreement supports the role of VCMs in reducing global emissions by implementing carbon accounting rules for voluntary markets and by allowing countries to include carbon offsets in their Nationally Determined Contributions, or each country’s pledged emissions reductions (HSFKramer, 2025). Additionally, many of the biggest corporations across the world, including Shell, Amazon, Walmart, and Apple, have made net-zero pledges, which rely on the use of VCMs. The enthusiasm behind VCMs is reflected in the fact that the global value of all VCMs reached a high point of $2 billion USD in 2024 (Trenchor et al., 2024), and although it has declined in the last two years, experts predict that corporate demand may increase the market size to $7-$35 billion by 2030 (Saunders et al., 2025).

VCMs function through the use of carbon offsetting. Carbon offsetting is the exchange of carbon credits between actors who wish to reduce their net-emissions and actors who carry out emission reduction projects to reduce the net impacts of the former. Carbon credits represent a measurable reduction, avoidance, or removal of one ton of atmospheric carbon dioxide (South Pole, n.d.). Actors aiming to reduce their emissions buy carbon credits from project developers, who then use the funds to carry out the emissions-reducing project (South Pole, n.d.). The price of carbon, as represented in the price of the carbon credit, reflects the societal cost of emissions, and paying the price is how actors internalize the societal cost of their emissions (Dumetrescu and Ansotegui, 2024). The owners of carbon credits can sell and exchange credits with other actors who may use them down the line; for instance Microsoft selling a carbon credit to Apple. When a credit is used to reduce, sequester, or avoid emissions, it is consumed and can no longer be traded, as the funds represented by the credit have been used (UNDP, 2022). 

The embrace of VCMs throughout the most prominent intergovernmental organizations, state governments, and corporations has propelled them to become a significant method of emissions reduction in the fight against climate change. As such, the efficacy of voluntary carbon markets has important consequences for the efficacy of the broader global approach to combat emissions. Proponents of VCMs consider them to be an effective mechanism to combat climate change by fostering flexibility, practicality, and resilience in emissions reductions. However, in practice, their efficacy and justness in reducing emissions remain highly contested, introducing questions related to greenwashing and human rights abuses. As such, there exists deep contention over the efficacy, morality, and general desirability of VCMs. This article considers arguments for and against VCMs and explores solutions that aim to address the practice’s shortcomings.

Voluntary Carbon Markets as a Crucial Climate Strategy?

Proponents of VCMs point to several of their strengths in reducing emissions. For one, VCMs are able to facilitate the participation of a diverse set of actors in emissions reductions. Firms which operate in sectors that emit hard-to-abate carbon are given a platform to offset carbon through the flexible mechanisms of VCMs. Even for companies that are willing to decarbonize quickly, VCMs provide more flexibility in offsetting the emissions that arise from the difficult-to-abate parts of their supply chains and operations (Trencher et al., 2024). Importantly, proponents of VCMs recognize that all firms must still prioritize decarbonizing their own value chains. However, they also recognize VCMs as a critical instrument that firms can utilize to take responsibility for current emissions (ICVCM, 2024). This broadening of participants in emission reduction activities makes VCMs a highly practical emissions reduction technique.

Another major benefit of VCMs is the opportunity they provide for the advancement of technological innovation. Without the regulation and bureaucracy of compliance markets, project developers for VCMs can develop innovative emissions reduction solutions (Corporate Finance Institute, 2023). This allows VCMs to serve as a dynamic mechanism for investment into climate technology.

An additional strength of VCMs is their political independence. By harnessing funds from the private sector, VCMs create a major non-governmental source of financing for emissions-reducing projects. Furthermore, considering the volatility of many government-sponsored emissions reduction efforts, often due to politicization, voluntary carbon markets strengthen the resilience of the global approach to climate change. Finally, given that most carbon-reducing projects are based in developing countries, VCMs allow for unique opportunities for foreign direct investment (FDI) into poorer countries (Streck, 2021).

Voluntary Carbon Markets as Elaborate and Unjust Greenwashing?  

Criticism of VCMs often centers on their inability to meaningfully reduce global carbon emissions. An analysis of the 20 companies responsible for offsetting the largest amount of emissions through VCMs revealed that their offsets were mostly low-quality (Trencher et.al, 2024). VCMs facilitate low-quality emissions reductions through various mechanisms. One way is through engaging in the practice of emissions avoidance over the practice of emissions removals. Avoidance activities occur when a project claims to have avoided the release of greenhouse gas (GHG) emissions that could have been released in a counter-factual scenario (e.g., protecting a forest that could have been deforested). On the other hand, removal activities capture and sequester atmospheric CO2 (e.g., direct-air capture, afforestation). Removal has a much bigger impact on reducing global temperatures. From 2020-2023, avoidance activities accounted for 97% of the carbon credits used by the top 20 biggest users VCMs (Trencher et.al, 2024). As such, this heavy reliance on carbon avoidance, rather than emissions removal, has limited the positive climate impact of VCMs.

Another way in which VCMs enable low-quality emissions reductions is by failing to contribute to additional emissions reductions. ‘Additionality’ refers to the principle that the emissions reduction or removal from a climate project must be due to the financial incentives of the carbon credit (Forliance, n.d.). In other words, the additionality of a project ensures that the project wouldn't have happened without the carbon credits. When VCMs do not address the additionality issues, they undermine emissions goals (Dumetrescu and Ansotegui, 2024). There has been concerning evidence of the lack of additional emissions reduction by many offset projects. For example, less than 20% of the credits sold in the California Forest Offset Program led to emissions reductions that were separate from what the carbon capture forests would have accomplished anyway (Haya, 2019). Additionally, over half of the approved offsets used for wind farms in India were found to be for farms that likely would have been built anyway (Calel et al., 2025). Thus, the additionality of carbon reductions by VCMs has been relatively weak. 

A separate way in which VCMs have allowed for low-quality emissions reductions is through the practice of double counting. Double counting occurs when two distinct entities use emissions reductions toward meeting both of their respective climate targets (Gabbatiss et al., 2023). In the context of VCMs, an example of double counting might be exemplified by Walmart purchasing credits for a project in Indonesia, and Indonesia then using the credits for its own climate targets, while Walmart also uses them towards its goal of being carbon neutral. This practice leads to much lower actual emissions reductions because of the exaggeration of climate benefits.

A further issue that has tarnished the reputation of VCMs is instances of human rights abuses. These abuses have largely occurred through land dispossession from native communities across the Global South. For many native communities, access to their land is essential to their ways of life. This means land dispossession caused by climate projects has drastic consequences for Indigenous communities. Unfortunately, examples of the mistreatment of Indigenous communities as a result of carbon offsetting projects are plentiful. In 2024, a report by Human Rights Watch documented abuses against the Chong people of Cambodia. Prior to any consultation with the Chong community, carbon projects were initiated on their land (Chávez, 2024). Chong families were then forcibly evicted from their homes, and some individuals were detained for months without trial. Similar incidents have also occurred throughout Africa. The Maasi people of Northern Tanzania have had to change their grazing patterns as a result of carbon projects which they were barely warned of (Diab, 2025). Incidents such as these raise questions about the ethical standing of VCMs.        

A Look Forward: How to Improve Voluntary Carbon Markets 

VCMs are clearly plagued by weaknesses that hinder genuine emissions reductions and equitable outcomes. However, as discussed, VCMs possess several key benefits that grant them a unique upside. With a targeted and comprehensive set of improvements, VCMs may be able to fulfill their potential and play a central part in equitably reducing carbon emissions. So, when considering the main challenges in promoting high-quality emissions reductions while protecting human rights, what are some of the basic improvements that need to be made?

One necessary improvement is the alignment of the various different carbon credit standards into one recognized framework. There are currently several different organizations that independently provide certifications for carbon offset projects. This has led to various approaches of validating, verifying, and monitoring projects, as well as estimating emissions reductions (Smaran and Kumar, 2024). Aligning these standards would allow for more efficient and effective auditing and crediting schemes (Dawes, 2024). In order to better protect Indigenous land rights, any coordinated carbon credit standard must include criteria to protect land rights. Reference to the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) may be helpful in this regard. Scholars have pointed to recent initiatives such as the Core Carbon Principle Project started by the Integrity Council for the Voluntary Carbon Market as good examples of how to set standards for high-quality emission reductions (Smaran and Kumar, 2024). Furthermore, during COP 28, six of the largest independent crediting organizations agreed to better coordinate their approach to certification (Dawes, 2024). These developments provide important momentum in successfully aligning credit standards.

A further measure that is required to enhance the emission reduction quality of VCMs is increased government oversight. Given the wild and unsupervised status of many VCMs, stricter regulation and enforcement of credit standards would be highly beneficial. The government is the ideal candidate for the task, given its capacity to assign legal punishments to misleading emissions reduction claims (Smaran and Kumar, 2024). Relying on the government for regulation would also help deter collusion between certification standard organizations and rating agencies – the agencies that rate the carbon removal of projects (Smaran and Kumar, 2024). This would provide a much greater degree of integrity and equity to VCMs.

Another important step that is needed to improve the effectiveness of VCMs is to increase the scale of carbon offsetting projects. Small offset projects require the same basic administrative tasks as larger projects (Mendelsohn et al., 2021). This administrative work, including vetting and tracking, is inefficient unless producing larger offsetting projects that take advantage of economies of scale (Mendelsohn et al., 2021). Furthermore, when being assigned a smaller forest-based project, for example, it is easier for project developers to use their local knowledge to find project sites that require little work and produce minimal benefits (Mendelsohn et al., 2021). As such, creating requirements for the scale of emission-reducing projects with a proper oversight authority, such as the government, would allow for more impactful VCMs.

These are just a few of the basic improvements that VCMs need for their full potential to be realized. Whether they occur or not will depend on the integrity and coordinated efforts of actors across all facets of society.

References

Calel, R., Colmer, J., Dechezleprêtre, A., & Glachant, M. (2025, January 1). Do Carbon Offsets Offset Carbon? American Economic Journal: Applied Economics 17, no. 1: 1–40. https://doi.org/10.1257/app.20230052.

Chávez, L. T. (2024, November 12). Carbon Offsetting’s Casualties. Human Rights Watch. https://www.hrw.org/report/2024/02/29/carbon-offsettings-casualties/violations-chong-indigenous-peoples-rights.

Corporate Finance Institute. (2023, October 8). Voluntary Carbon Market. https://corporatefinanceinstitute.com/resources/esg/voluntary-carbon-market/#:~:text=The%20voluntary%20carbon%20market%20enables%20private%20firms%2C%20individuals%2C%20governments%2C,poor%20communities%20in%20their%20countries.

Dawes, A. (2024, February 2). What’s Plaguing Voluntary Carbon Markets? CSIS. https://www.csis.org/analysis/whats-plaguing-voluntary-carbon-markets.

Diab, K. (2025, October 9). Exposing the human rights and wrongs of carbon market projects. Carbon Market Watch. https://carbonmarketwatch.org/2025/10/09/exposing-the-human-rights-and-wrongs-of-carbon-market-projects/.

Dumitrescu, A., & Ansotegui, C. (2024, November 18). Unlocking the Potential of Carbon Markets: Challenges and Opportunities. Do Better ESADE. https://dobetter.esade.edu/en/carbon-markets.

Forliance. Additionality in Climate Protection Projects. Accessed October 26, 2025. https://forliance.com/news-and-insights/knowledge-base/additionality.

Gabbatiss, J., Dunne, D., Chandrasekhar, A., Dwyer, O., Lempriere, M., Quiroz, Y., Tandon, A., & Viglione, G. (2023, September 25). In-depth Q&A: Can ‘carbon offsets’ help to tackle climate change? Carbon Brief. https://interactive.carbonbrief.org/carbon-offsets-2023/index.html#why-are-there-double-counting-risks-with-carbon-offsets. 

Haya, B. (2019). Policy brief: the California Air Resources Board’s US Forest offset protocol underestimates leakage. Berkeley, CA.

HSFKramer. (2025, August 7). How does Article 6 of the Paris Agreement regulate carbon markets? https://www.hsfkramer.com/insights/key-topics/carbon-markets/how-does-article-6-paris-agreement-regulate-carbon-markets.    

ICVCM. (2024, June 13). The Voluntary Carbon Market Explore. https://icvcm.org/voluntary-carbon-market-explained/.

​​Kumar, R. S. S. (2024, October 17). Voluntary Carbon Markets Are Helpful but Far from Perfect - LSE Business Review. LSE Business Review. https://blogs.lse.ac.uk/businessreview/2024/10/18/voluntary-carbon-markets-are-helpful-but-far-from-perfect/.

Mendelsohn, R. O., Litan, R. E., & Fleming, J. (2021, September 16). A Framework to Ensure That Voluntary Carbon Markets Will Truly Help Combat Climate Change. Brookings. https://www.brookings.edu/articles/a-framework-to-ensure-that-voluntary-carbon-markets-will-truly-help-combat-climate-change/.

Saunders, J., Akhouri, U., Turner, G., & Lambert, J. (2025, January 6). Frozen Carbon Credit Market May Thaw as 2030 Gets Closer. MSCI. https://www.msci.com/research-and-insights/blog-post/frozen-carbon-credit-market-may-thaw-as-2030-gets-closer.

South Pole. Carbon Credits Explained: A Guide to Climate Action. Accessed October 26, 2025. https://www.southpole.com/sustainability-solutions/carbon-credits-frequently-asked-questions.

Streck, C. (2021, February 12). How Voluntary Carbon Markets Can Drive Climate Ambition. Journal of Energy & Natural Resources Law, 1–8. https://doi.org/10.1080/02646811.2021.1881275.

Trencher, G., Nick, S., Carlson, J., & Johnson, M. (2024, August 10). Demand for Low-Quality Offsets by Major Companies Undermines Climate Integrity of the Voluntary Carbon Market. Nature Communications 15, no. 1. https://doi.org/10.1038/s41467-024-51151-w.

UNDP Climate Promise. (2022, June 30). What Are Carbon Markets and Why Are They Important? https://climatepromise.undp.org/news-and-stories/what-are-carbon-markets-and-why-are-they-important.