By Bastien Declercq
Nearly 30 years after the Kyoto Protocol ushered in the first international carbon markets, and despite today’s surging demand for decarbonisation solutions, carbon as an asset class is still struggling to scale.
Ecosystem Marketplace, a non-profit tracking carbon and environmental finance, found in an annual review of voluntary carbon markets that 2024 transaction volumes fell to a six-year low, with total market value down 29% to US$535 million.
Potential buyers of carbon credits today are faced with a bewildering range of standards and project types that require extensive and ongoing due diligence. It is hardly surprising that many give up.
It doesn’t need to be like this. The long-standing international bond and equity markets not only offer practical examples of how to scale, but also the trading and clearing infrastructure – as well as the principles of benchmarking and rating – that could help to unlock the potential of carbon as an asset class.
Global financial markets have been one of the undisputed growth stories of the last hundred years, growth that has been driven in large part by transparency and fungibility. Voluntary carbon markets must learn to embrace both.
Why standards matter
Standardisation and transparency in markets is not just a way to make participation more convenient – it is absolutely critical for building confidence, because it brings consistency and comparability.
Applied consistently to carbon credit markets, standardisation – and the fungibility that this could bring – would have real-world impacts on underlying projects too. Today, many projects are stymied by administrative hurdles even just to get off the drawing board, or else are already operating but are so complex that investors struggle to understand them. The result is credits that investors either cannot adequately access or assess, or both.
Take the example of the fixed income market: investors are of course interested in the business a bond issuer is engaged in, but more important is the credit rating of those bonds – because it gives a way to benchmark risk, allowing investors to compare and contrast one borrower with another.
It’s why observers regularly call for greater involvement of carbon-credit-rating agencies as a way to apply greater rigour to the market and to unlock its potential. The confidence that the familiar infrastructure of ratings agencies and insurers would bring to the carbon market would lead to a gradual acceptance of credits as fungible units.
Borrowing from traditional financial market practices would not remove every hurdle: there will doubtless remain unique challenges in achieving true interchangeability between carbon credits. But the result of greater standardisation would be a greater understanding by investors of the characteristics of a credit, more projects coming to market, more participants, more investment, and more liquidity.
Marex’s partnership with the Global Mangrove Trust (GMT) in Indonesia illustrates the variety of financial market participants that are needed in order to scale credible, high-impact climate projects while delivering meaningful local benefits. Launched in 2021, the mangrove protection and restoration initiative covers 3,855 hectares and issued more than 100,000 high quality carbon credits in its first three years. To bring the project’s carbon credits as a high-quality product to the market, it took two raters and verifiers, one standards body, and a Lloyd’s of London insurer.
If such carbon credits can be traded, more of such ecosystems will spring forth. It would create the liquidity, trust, and price discovery needed to make carbon a mainstream investable asset class.
On the horizon: a blend of voluntary and compliance carbon
The good news is that compliance markets are increasingly offering a way forward, by bringing their influence to bear on the voluntary markets. Now is a pivotal moment as compliance markets are accelerating: globally, over 70 carbon pricing mechanisms now exist, with more under development.
Across Asia, regulators are already taking steps to integrate voluntary and compliance mechanisms into a cohesive regional framework. Countries such as Singapore, Japan, Indonesia, Vietnam, and Thailand are advancing market structures that blend national carbon pricing with participation in voluntary systems. This convergence reflects a shared ambition: to align carbon markets with broader economic development and net zero goals.
The experiences of Bhutan and Singapore offer powerful lessons for how this can be done. Bhutan’s creation of a national carbon registry and transparent policy framework demonstrates how smaller economies can mobilise high-integrity climate finance. Singapore, meanwhile, is building the foundation for a trusted regional ecosystem — one that combines regulatory clarity, robust monitoring and verification, and an active marketplace linking governments, investors, and project developers.
Asian markets must evolve from fragmented initiatives into a network of credible, interconnected carbon exchanges — supporting both credit-generating and credit-buying nations. The path forward lies in leveraging the proven strengths of financial markets: transparent price discovery, standardisation, and investor confidence.
As the World Bank has noted, carbon markets can play a catalytic role in the global response to climate change, accelerating the flow of capital toward low-carbon development. Carbon as an asset must move beyond promise and become what it was meant to be: a high-impact, investable asset class that accelerates the transition.
Bastien Declercq is Head of Environmental at Marex and CEO of CSC Commodities, a division of Marex.
Any opinions expressed in this commentary reflect the views of the authors and not of Carbon Pulse.
