Carbon Credit Market Size, Share & Trends Analysis Report By Type (Compliance, Voluntary), By Project Type (Avoidance/Reduction Projects, Removal/Sequestration Projects), By End-use, By Region, And Segment Forecasts, 2023 - 2030

Report Overview

The global carbon credit market size was valued at USD 364.03 billion in 2022 and is projected to grow a compound annual growth rate (CAGR) of 38.7% from 2023 to 2030. The demand for carbon credits has been increasing in recent years due to several factors, such as governments introducing policies and regulations that are aimed at reducing greenhouse gas emissions. Companies that are subject to these regulations may need to purchase carbon credits to offset their emissions and comply with regulations. The Indian Government passed the Energy Conservation Bill 2022 in December of that year, which clears the way for establishing carbon credit markets.

In 2022, the U.S. was the largest market for carbon credits in North America. The market for carbon credits is primarily driven by a combination of state-level programs and voluntary markets. At the state level, several states have implemented cap-and-trade programs, which set a limit on the total amount of greenhouse gas emissions allowed within the state and require companies to purchase carbon credits to offset their emissions. One example of this is the Regional Greenhouse Gas Initiative (RGGI), which is a cap-and-trade program implemented by nine northeastern states of the country.

In addition to state-level programs, there are also voluntary markets in the U.S. where companies can purchase carbon credits to offset their emissions. These voluntary markets are often used by companies that want to reduce their carbon footprint but are not required to do so by regulation. Overall, the U.S. market for carbon credits is still relatively small compared to some other countries, such as European economies, but it is growing and could potentially play a larger role in reducing greenhouse gas emissions in the future.

The increasing demand for carbon credits is due to several factors such as companies rapidly recognizing the importance of sustainability and reducing their carbon footprint as part of their corporate social responsibility initiatives. This has led to a sustained demand for carbon credits to offset their emissions. In addition, growing concerns about climate change and its potential impacts in the coming years have also led to an increased demand for carbon credits.

One of the major challenges faced by the market includes the price volatility of carbon credits, which is subject to fluctuate according to demand and supply. This can make it difficult for companies to plan for the long term and can also make it challenging to ensure that the price of carbon credits provides a sufficient financial incentive for emissions reductions.  

Type Insights

In terms of revenue, the compliance segment accounted for the largest share of 98.91% in the market in 2022. The compliance carbon credit market is where companies and organizations that are regulated by a government or a specific authority are required to offset their carbon emissions by purchasing carbon credits. These credits represent a reduction in greenhouse gas emissions from an approved project, such as renewable energy or energy-efficiency initiatives. Based on type, the market for carbon credits is segregated into compliance and voluntary.

Governments around the world are implementing policies and regulations to reduce greenhouse gas emissions and combat climate change. Many of these regulations require companies to offset their emissions by purchasing carbon credits. These factors are expected to drive the compliance carbon credit market globally. Carbon credits can provide financial incentives for companies to invest in low-carbon technologies and projects. By reducing their emissions and purchasing carbon credits, companies can reduce their exposure to carbon taxes and other costs associated with carbon emissions.

Project Type Insights

In terms of project type, the avoidance/reduction projects segment led the market in 2022 by accounting for a revenue share of 66.88% of the overall market. Based on project type, the carbon credits market has been segmented into avoidance/reduction projects and removal/sequestration projects. The removal/sequestration projects segment has been bifurcated into nature-based and technology-based projects.

Avoidance/reduction projects include carbon offset from renewable energy projects and methane capture facilities. For example, a renewable energy project such as a wind farm might generate carbon credits by avoiding the emissions that would have been produced by a coal-fired power project. These credits can then be sold to companies or individuals who want to offset their own emissions.

Similarly, a forest conservation project might generate carbon credits by protecting an area of forest that would otherwise have been cleared, thus avoiding the emissions that would have been produced by deforestation. These credits can be sold to companies or individuals who want to offset their own emissions.

End-use Insights

In terms of revenue, the power segment led the market in 2022 by accounting for a share of 31.01% of the market. The power sector is a major emitter and uses low GHG technologies in order to adopt carbon-offsetting projects and schemes. Based on end-use, the market for carbon credits has been segmented into power, energy, aviation, transportation, buildings, industrial, and others. The other end-uses segment includes forestry, agriculture, and waste.

Carbon offsets are a market-based mechanism used to mitigate greenhouse gas (GHG) emissions, including those in the energy sector. Essentially, carbon offsets allow entities to fund emission reduction projects elsewhere to offset their own emissions. In the energy sector, this can involve investing in renewable energy projects, such as wind or solar, or in methane-based projects.

In the industrial sector, carbon credits can be earned by implementing emissions reduction measures, such as improving energy efficiency, using cleaner fuels, or implementing carbon capture and storage technology. These reductions are verified and certified by independent third-party organizations, which issue carbon credits that can be sold on the open market.

For example, a steel manufacturing company could reduce its emissions by upgrading its production processes to use cleaner energy types or implementing more efficient technologies. If the emissions reductions meet certain standards and are independently verified, the company can earn carbon credits that can be sold on the market. Another company that emits GHG emissions, such as a power or transportation company, could then purchase these carbon credits to offset their own emissions. These factors are expected to propel the market growth over the projected period.

Regional Insights

Europe accounted for the dominant market share of 89.56%, in terms of revenue, in 2022. The regional market is based on the EU's Emissions Trading System (ETS), which is the largest carbon market in the world. The ETS was established in 2005 and covers more than 11,000 installations in the power and industrial sectors in 31 European countries. These installations are responsible for around 45% of the EU's GHG emissions.

The price of carbon offsets in the EU ETS is largely determined by supply and demand. The total supply of allowances is capped by the EU, and the price of carbon credits can fluctuate, based on factors such as economic conditions, energy prices, and climate policies. Demand for carbon credits can be influenced by factors such as the price of fossil fuels, the availability of renewable energy, and the adoption of low-carbon technologies.

North America is expected to witness the highest CAGR in the region over the forecast period. The growth in the popularity of carbon credits in North America has been influenced by market dynamics, including supply and demand, price volatility, and market regulations. The establishment of carbon credit markets, such as the California cap-and-trade system and the Quebec-Ontario carbon market, has helped provide a price signal for GHG emissions reductions, encouraging the development of renewable energy and cleaner technologies.  

Key Companies & Market Share Insights

The market is moderately fragmented, with key participants involved in R&D and technological innovations. Notable companies include EKI Energy Services Limited, NativeEnergy, ClearSky Climate Solutions, and 3Degrees Group, among others. Several players are engaged in framework development to improve their market share. For instance, in March 2023, The Integrity Council for the Voluntary Carbon Market launched its Core Carbon Principles and Program-level Assessment Framework for carbon credits, setting thresholds on carbon emission and sustainable development. Some of the prominent players in the global carbon credit market include:

• 3Degrees Group, Inc.

• Carbon Care Asia Ltd.

• CarbonBetter

• ClearSky Climate Solutions

• EKI Energy Services Limited

• Finite Carbon

• NativeEnergy

• South Pole Group

• Torrent Power Limited

• WGL Holdings Inc.

Carbon Credit Market Report Scope

Global Carbon Credit Market Report Segmentation

This report forecasts revenue growth at the global, regional, and country levels and provides an analysis of the latest industry trends in each of the sub-segments from 2018 to 2030. For the purpose of this study, Grand View Research has segmented the global carbon credit market report based on type, project type, end-use, and region:

• Type Outlook (Revenue, USD Billion, 2018 - 2030)

  • Compliance

  • Voluntary

• Project Type Outlook (Revenue, USD Billion, 2018 - 2030)

  • Avoidance / Reduction Projects

  • Removal / Sequestration Projects

    • Nature-based

    • Technology-based

• End-use Outlook (Revenue, USD Billion, 2018 - 2030)

  • Power

  • Energy

  • Aviation

  • Transportation

  • Buildings

  • Industrial

  • Others

• Regional Outlook (Revenue, USD Billion, 2018 - 2030)

  • North America

    • U.S.

    • Canada

    • Mexico

  • Europe

    • Germany

    • UK

    • France

    • Spain

    • Italy

    • Netherlands

    • Sweden

  • Asia Pacific

    • China

    • Japan

    • India

    • South Korea

    • Australia

  • Central and South America

    • Brazil

  • Middle East and Africa