By Tommy Ricketts
From Brazil to Singapore, compliance carbon market structures are taking shape. Governments everywhere are designing frameworks to instill trust, protect real decarbonisation, price unabated emissions, enable allocative efficiency, and scale climate finance for the Global South and emerging industries.
Embedding independent carbon ratings will ensure project-level risks are taken into account and encourage a “race to the top” in credit quality.
Many compliance schemes currently attempt to guarantee credit integrity by approving certain carbon standards or methodologies. To do this, many are developing local standards or turning to voluntary carbon standards and metastandards — such as the Core Carbon Principles — to improve baseline quality.
But compliance markets are different: credits must carry legal, financial, or regulatory weight. The bar for integrity must be correspondingly higher.
Methodology approval sets a useful floor, but it doesn’t account for the nuances that determine whether an individual project actually performs as intended. The wide range of credit quality we see within approved methodologies — including CCP-aligned projects — reveals that performance risk exists even among supposedly “high-integrity” cohorts.
The key issue is that performance risks are fundamentally project-specific.
Analysis from BeZero Carbon reveals that among the top eight methodologies by issuance, project ratings span seven out of eight rating grades, from AA to D.
For CORSIA, “in-scope” Phase One eligible credits range from A to C. For CCP-eligible projects, we see a four-grade A–B range, compared to a BBB–C range for CCP-rejected projects. This highlights both false positives (lower-rated projects included) and false negatives (higher-rated projects excluded) that arise from relying solely on methodology-based inclusion.
The reality is that two projects using the same methodology can vary dramatically in quality due to site conditions, project design choices, and underlying assumptions. Fully eliminating performance risks like additionality failures, inaccurate carbon accounting, or non-permanence is unrealistic.
Governments relying solely on methodology-level approval risk endorsing low-performing projects, while inadvertently excluding better-performing ones. This undermines market confidence and misallocates billions in climate finance.
To achieve strong market integrity, governments must move beyond methodology-level controls and acknowledge the importance of project-level risks in their target market structures.
Independent carbon ratings provide a project-level assessment of the likelihood that a credit delivers its stated climate benefit. The BeZero Carbon Rating is widely used across the voluntary carbon market, operating much like credit ratings in financial markets.
Ratings empower buyers to reward quality, developers to strive for higher integrity, and investors to allocate capital responsibly. This creates a clear incentive structure that prioritises climate outcomes over cost alone.
To succeed, compliance schemes must replicate this mechanism by embedding ratings into regulatory frameworks.
In voluntary markets, buyers are highly sensitive to reputational risk. In compliance markets, businesses are primarily motivated to minimise costs. Without regulation, the lowest-cost, lowest-quality credits will dominate—a “race to the bottom” that risks repeating the boom-bust cycles of the UN Clean Development Mechanism and the Carbon Neutral claims backlash.
If poor-quality credits flood compliance systems, it will damage government credibility, suppress allowance prices, and weaken decarbonisation incentives. Governments must act to protect the long-term viability of carbon markets by mandating transparent, independent risk assessments for all eligible credits.
In our conversations with governments, we recommend two straightforward actions:
- Require ratings for all compliance-eligible credits, publicly disclosed through registries.
- Require disclosure of ratings for all retired credits, ensuring full market transparency.
These steps would empower participants to evaluate risk, create stronger buyer incentives for quality, and drive a structural shift toward higher project integrity.
Governments could go further by introducing minimum rating thresholds, applying rating-based discount factors, or setting average rating targets across corporate portfolios.
Introducing ratings into existing schemes must be phased carefully to avoid disruption. Offering subsidies to smaller developers can ensure equitable access.
Governments must also ensure that ratings agencies are credible and independent. Borrowing best practices from financial regulation — transparency, accountability, and conflict safeguards — will help maintain trust and drive adoption.
Incorporating Article 6 credits into compliance schemes requires special caution. Government-to-government agreements do not guarantee credit integrity. Independent ratings offer the necessary check — especially in light of past shortcomings under UN mechanisms.
We estimate compliance carbon credit markets could exceed $15 billion by 2030. Without ratings, that capital risks flowing to underperforming projects. With them, it can back high-quality outcomes — restoring ecosystems, scaling carbon removals, and delivering verifiable climate impact.
Ratings create the conditions for a positive feedback loop: where quality is rewarded, impact is maximised, and trust in carbon markets grows stronger.
They are a market-ready tool, already in widespread use and offer the protection and transparency compliance (and voluntary) markets urgently require.
Tommy Ricketts is CEO and co-founder of BeZero Carbon.
Any opinions expressed in this commentary reflect the views of the author and not of Carbon Pulse.
