By Francisco Sebastian Ocampo

I have worked in the carbon market for more than twenty years. Long enough to have seen its cycles, its contradictions, and its missed opportunities. This is not a criticism but a reflection, and like any reflection, its only purpose is to invite people to think and to debate before we continue moving in a direction that, I believe, is not taking us anywhere good.

Every market is imperfect. The voluntary carbon market is no exception, nor does it need to be. What does catch my attention is that, unlike other markets where actors usually push to make things work, in this one it seems that, without realising it, we are pushing in the opposite direction.

To understand why I say this, I suggest starting with a distinction that seems simple but helps organize the analysis: the carbon market can be looked at from the demand side or from the supply side. These are two realities with different dynamics and different causes, and most importantly, with very different levels of influence for those of us who operate within it. That distinction is the starting point for everything that follows.

The demand side: a context we do not control

The carbon market, like any market, responds to the interaction between supply and demand. And when we look at the current moment from the demand side, the picture is, at the very least, complex.

Demand for carbon credits does not appear out of nowhere. It depends on real climate commitments, on public policies that remain stable over time, and on a geopolitical context that allows governments and companies to think beyond immediate concerns. That context today is far from ideal.

The past four years have been marked by a series of events that have shifted the priorities of the main global actors. The wars in Ukraine and the Middle East have put security and defense at the centre of attention. The withdrawal of the US from the Paris Agreement not only removed one of the world’s largest historical emitters from the multilateral climate equation, but also created a difficult-to-ignore effect: when the world’s second largest economy decides that climate change is not a priority, other actors review their own commitments. And on top of that, the trade war between the main economic powers has governments looking inward, prioritising domestic economic stability over any long-term agenda.

In this scenario, expecting sustained growth in demand would be unrealistic. However, saying that there is no demand would also be incorrect. There is demand. There are countries that maintain their climate commitments, companies that understand sustainability as a competitive advantage and not as a cosmetic obligation, and sectors that, by regulation or by conviction, continue to demand quality credits. The work on this side of the market, therefore, is to identify those actors with precision, understand what they are looking for, and design an offer that meets their expectations.

That said, if there is one place where we can truly intervene and generate real change, it is on the supply side.

The carbon market for what it is: a tool, not a solution

From the beginning, the voluntary carbon market has carried a burden it was never meant to carry: being presented, or perceived, as the solution to climate change. That perception created disproportionate expectations and, as a result, disproportionate disappointments. It is important to place this tool in its real dimension.

According to the latest Emissions Gap Report from the UN Environment Programme, global emissions reached a record 57.1 billion tonnes of CO2-equivalent in 2023. To stay on the 1.5°C pathway, the world needs to reduce those emissions by 42% by 2030 and 57% by 2035, which means cutting approximately 24 billion tonnes per year in less than six years. The voluntary carbon market, meanwhile, retired approximately 182 million tonnes of credits in 2024, according to the annual report by Ecosystem Marketplace. Less than 1% of what needs to be reduced each year.

This fact is not a criticism of the market. It is simply its real size. The voluntary carbon market was never, and never claimed to be, the main mechanism for global decarbonisation. That task belongs to energy policies, technological transition, carbon pricing systems at national and regional levels, and structural decisions that go far beyond any certified credit. Debating whether the voluntary carbon market is or is not the solution to climate change is, in many ways, a discussion that starts from the wrong premise.

What that carbon market truly is, and where its real value lies, is a financial tool. A tool that allows countries, companies, and communities to access funding for projects that otherwise would not find the resources needed to move forward. An energy efficiency project in a small industry, a waste management system in a municipality, a reforestation initiative in a rural community, or the preservation of a native forest that would otherwise face productive pressure: none of these projects will solve climate change on their own, but all of them create a real, measurable, and verifiable impact. And all of them need funding to exist.

This last example deserves special mention because it illustrates a concept that is often overlooked: opportunity cost. A landowner with productive capacity who decides to preserve native forest instead of clearing it for production is making an economic decision with real consequences. He is giving up potential income. For that decision to be sustainable over time, preservation must also be a viable business. In that context, the carbon market is the mechanism that can make preservation as financially attractive as production. Without that equation, preservation depends on the owner’s will or financial capacity, two factors that are not always available or sufficient.

If we think for a moment about the financing alternatives available for any project, we find debt markets, banks, investors, or strategic partners. If the project is solid and profitable, it will probably find one of those paths. But in many countries, especially those that most need development, those paths require conditions that go far beyond the real capacity of those seeking financing. Interest rates are high, guarantees are excessive, and timeframes do not match the real maturity of investments. In that context, the voluntary carbon market should be exactly that: a different alternative, accessible to those who do not have easy access to traditional financial markets. Moreover, it can add something no other source of funding necessarily offers: a positive and verifiable environmental and social impact.

That is what is called triple impact. And it is the most genuine difference this tool has compared to any other financing option.

The supply side: where we can act, and where we are failing

If on the demand side our room for action is limited, on the supply side it is the opposite. Here we can intervene. I am referring to all actors involved in the development, certification, and issuance of credits: standards, Validation and Verification Bodies (VVBs), developers, governments, and why not, rating agencies. Each from their role, each with their share of responsibility.

Achieving certification of a carbon project today requires, on average, no less than two years from the beginning of development to registration. If we add the time needed for the first issuance of credits, that period easily extends to three or four years. For any developer or project owner evaluating the voluntary carbon market as a financing alternative, that fact alone is already a warning sign. But the problem is not only time. It is cost, uncertainty, and the growing complexity of a process that, instead of evolving toward efficiency, seems to have moved in the opposite direction.

Standards have added increasingly detailed requirements over the years, often in response to external criticism or specific cases that, while real, do not necessarily justify the level of complexity that has been introduced. A Project Description Document that can take four to six months to prepare, followed by a validation process that requires another eight to twelve months, are timeframes that no other financing mechanism would demand from someone seeking to develop a project. When those timelines are multiplied by the associated costs, the situation becomes unviable for most cases.

VVBs operate within the framework set by the standards, and in that sense their autonomy is limited. But that does not remove their responsibility. The duration of audits, the lack of consistent criteria among different auditors for the same type of project, and the cost of their services directly contribute to the problem. A validation or verification process that lasts more than a year is not necessarily a sign of rigour but often a sign of inefficiency.

As for developers, and here I include myself, having been in this position for many years, the growing complexity of the process has been accompanied by a proportional increase in development costs, not always justified by the quality or speed of the work delivered. A project owner who decides to move forward with certification assumes significant costs for years, without any certainty about when, or if, the first credits will be issued. That uncertainty, combined with those costs, is in itself a strong disincentive.

Regarding the role of governments, it is important to recognise that their participation in the voluntary carbon market is necessary and valuable. Governments play a central role as promoters, regulators, and guarantors of transparency at the local level, including national project registries, fraud prevention mechanisms, and the orderly management of their Nationally Determined Contributions. That is a role no other actor can fulfill and, when properly exercised, strengthens the market as a whole. Where caution is needed is in the overlap of functions. When governments move into technical or methodological aspects of projects that have already been evaluated, audited, and registered by the relevant standards and VVBs, what is created in practice is duplication of work that increases time and costs without adding real value.

Rating agencies deserve special reflection, starting with a point that is often lost in the discussion: the rating process is completely voluntary. It is not part of the formal certification process, and it is the developer or project owner who decides whether or not to submit to it. That said, the decision is neither trivial nor free. Submitting a project to a rating agency implies a significant additional investment, which can be around fifty thousand dollars or more, on top of an already high cost structure. And the return on that investment is uncertain. Obtaining a good rating does not guarantee access to the reference price the project initially expected.

The outcome of all this is predictable. A project owner facing years of process, high costs, permanent uncertainty, and multiple actors with veto power makes a rational decision: look for another financing alternative or simply not invest. With that decision, the market loses a project, loses the emissions reductions that project would have generated, and loses the social and environmental co-benefits it would have brought.

That is what we are collectively building, intentionally or not.

More projects does not mean worse prices

Every time the need to simplify and speed up the certification process is raised, the same counterargument appears: if the process is simplified, there will be more credits in the market, supply will exceed demand, and prices will collapse. It sounds logical, but it does not hold up under closer analysis.

Simplifying is not the same as lowering integrity standards. A faster and less expensive process does not necessarily mean lower quality credits. It means removing redundant bureaucracy, reducing duplication, shortening timelines that add no value, and making accessible a process that today is reserved for those who have the resources to sustain it for years.

Finally, let us remember the data: in 2024 the voluntary market retired only 182 million tonnes of credits, compared to a need of around 24 billion tonnes of annual reductions to stay on the 1.5°C pathway. Less than 1% of what is needed. In that context, the fear of flooding the market with quality credits seems premature.

A call to think before it is too late

The carbon market will not disappear overnight. The mechanisms exist, the institutions exist, the standards exist, and there are actors genuinely committed to making this work. But there is a difference between a market that formally exists and a market that fulfills its real function. That difference today is growing.

Standards, VVBs, developers, governments, and rating agencies face a simple question: are we making this market work better or making it harder? The honest answer to that question is, I believe, the starting point for everything that comes next.

Francisco Sebastian Ocampo holds a degree in Political Science with a specialisation in International Relations, an MBA, and has more than two decades of professional experience in the international carbon market. This article is a personal reflection on the current state of the global carbon market.

Any opinions expressed in this commentary reflect the views of the authors and not of Carbon Pulse.

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