Transforming Global Carbon Market for a Sustainable Future

Recent discussions at the January 2025 World Economic Forum in Davos underscore the growing imperative for enhanced climate action and market-driven solutions to tackle global emissions. Leaders from government, finance and industry emphasised the importance of scaling carbon markets, investing in sustainable technologies and implementing policies supporting more equitable funding and investment to accelerate the transition to a lower-carbon economy. 

Particularly, the Forum reinforced the need for transformative action across the board – governments, technologies, corporates and investors – to align more cohesively around policies and strategies to drive a more efficient, equitable and impactful ecosystem that address climate challenges, protects environments and adjacent communities and drives economic growth.

This transformation is crucial to achieving a more sustainable future. In our recent iNSiGHTS paper, industry leaders and influencers came together to address the challenge of transformation and provided expert insights into what is needed to effect meaningful change.

 

Overcoming market fragmentation to build trust and efficiency

Fragmentation remains one of the most significant obstacles facing the global carbon market. Greater harmonisation of regulation, protocols and standards in different jurisdictions, more interoperability between multiple and disparate registries and trading venues and increased product fungibility is vital to growing investor confidence and trust in voluntary and compliance credit markets.

The ratification of Article 6 of the Paris Agreement at COP29 in 2025 provides a pathway for resolving many of these issues. By standardising verification mechanisms and creating a global carbon crediting system, countries and corporations can participate in more transparent and accountable emissions trading. 

At the same time, the adoption of new digital technologies like blockchain enhances accurate climate-reduction project tracking and enables the validation of carbon credits from origin to retirement, supporting market credibility and confidence.

A survey conducted by ZERO13 after COP29’s landmark ratification of Article 6 of the Paris Agreement generated the following key results:

• 88% of respondents emphasised the need for greater transparency, reduced fragmentation and equitable funding in voluntary carbon markets.
• 73% called for stronger, harmonised regulation in compliance markets.
• Respondents reiterated growing interest in the application of blockchain, AI, and IoT as catalysts for transparency and system interoperability.
• Urgent need to address the $4.2 billion annual climate funding gap, particularly with respect to projects in the Global South.

 

Addressing inequitable capital allocation for climate projects

Inequitable distribution of capital funding and investment is another major challenge that must be addressed. Climate projects in developing regions, and particularly in the Global South, which offer immense potential for carbon emission mitigation, remain underinvested compared to projects in the Global North.  Instead, climate and nature capital is more likely to flow to projects in developed economies with more well-established financial infrastructures, both limiting the impact of climate action (in terms of reduced carbon emissions and impact on communities from environmental damage) and exacerbating global economic inequality.

More equitable benefit-sharing frameworks are essential for carbon finance to reach the communities that need it most. Initiatives such as Community Development Funds and participatory project development programs are key initiatives to redirect a fairer share of carbon credit revenues to local populations, and fostering sustainable economic growth alongside environmental progress.

 

Leveraging technology for market transparency and integrity

Technological advancements, particularly in blockchain and artificial intelligence (AI), will be critical to revolutionising the carbon market and improving transparency and trust. Blockchain technology creates immutable records – a ‘golden course of truth’ – that ensures that every carbon credit transaction, and underlying project,  is verifiable and traceable, and mitigates the risks of double-counting, or worse, that ‘projects’ linked to carbon credits aren’t credible or legitimate.

AI-driven MRV (monitoring, reporting and verification) systems provide real-time analysis of emissions reduction projects, enabling more accurate assessment of carbon sequestration efforts. These technologies streamline compliance processes, reduce costs and enhance the credibility of carbon credit products. By integrating digital MRV solutions, market participants can ensure that high-quality projects receive the funding they deserve with accountability across all transactions.

 

Role of policy and regulation in strengthening carbon markets

Government policy and regulation play a pivotal role in shaping the future of carbon markets. Effective regulation can incentivise corporate participation, establish clear compliance requirements and drive investments in high-quality carbon reduction initiatives. 

Countries including India and Japan are developing their own carbon standards, aligned with international frameworks, to promote consistency and market stability. Regulatory delays and inconsistencies have, however, slowed the pace of growth of carbon trading mechanisms under Article 6 of the Paris Agreement. 

Governments must work collaboratively with international organisations and private sector stakeholders to create harmonised policies to facilitate cross-border carbon trading. Additionally, national tax incentives for companies investing in sustainable business transformation also serve as a powerful tool for driving genuine emissions reductions beyond offset and compliance strategies.

 

Corporate responsibility and the future of carbon markets

Corporations have a critical part to play in the evolution of carbon markets. While many companies use carbon offsets to meet their own sustainability targets and satisfy compliance obligations, the integrity of many compliance and voluntary carbon credit schemes is subject to increasing scrutiny.  There is also a school of thought that offsetting doesn’t actually reduce a corporation’s carbon load, and should not be a proxy for action that has a genuine impact on emissions reduction.

There needs to be a shift towards more long-term sustainability commitments. Businesses that integrate carbon reduction strategies into and across end to end supply chains, invest in nature-based solutions and participate in high-integrity credit markets can gain a competitive advantage. 

The development of corporate sustainability ratings can help investors distinguish between companies that are genuinely committed to environmental responsibility and those that engage in superficial greenwashing.

 

Call for collaboration and market innovation

Transforming the global carbon market requires a collaborative approach that brings together all stakeholders – governments, corporations, financial institutions, investors and technology and other service providers.  

The convergence of sustainable finance, regulatory frameworks and advanced technology presents an unprecedented opportunity to build a market that not only reduces emissions but also fosters economic growth and social inclusion.

The potential for a thriving, high-integrity carbon market is vast, but achieving this vision demands collective, collaborative action. By addressing fragmentation, improving capital allocation, leveraging technology and strengthening (and harmonising) regulatory frameworks, policies and standards of best practice, stakeholders can create a resilient and effective carbon market that supports a truly sustainable future for all.