Carbon Offset/Carbon Credit Market

Carbon offset are tradeable credits that allow companies and countries to compensate hard-to-abate emissions by investing in projects, which avoid or remove emissions from the atmosphere elsewhere. There are two varieties of carbon projects, such as carbon removal and carbon avoidance projects, either of which can generate credits an organization can purchase to offset their emissions.

The global carbon offset market can be divided into two main types:

• Voluntary market: The voluntary market has been further sub-segmented into forestry and land use, renewable energy, waste disposal, chemical processes/industrial manufacturing, energy efficiency/fuel switching, and others.
• Compliance market: The compliance market, on the other hand, has been subsegmented into EU ETS (Emission Trading Scheme), California Cap and Trade, and others.

Carbon Offset Market Growth Projections

The global carbon offset market (carbon offset / carbon credit) is projected to grow from USD 414.8 billion in 2023 to USD 1,602.7 billion by 2028, at a compound annual growth rate (CAGR) of around 31.0%.

The carbon offset market is driven by increasing global warming, stronger regulatory frameworks, net-zero commitments by corporations, and rising demand for carbon removal/sequestration.

Since the need to curb global warming has significantly increased, carbon offsetting has become fundamental to achieving net-zero greenhouse-gas emissions.

The carbon offset market offers an opportunity to achieve global greenhouse emission reductions while addressing the development needs of developing countries. Involving developing nations in climate protection allows them to achieve carbon emission reduction and avoidance while earning revenues from selling their offsets.

Avoidance offsets are generated from activities that reduce emissions by preventing their release into the atmosphere. Carbon avoidance via direct carbon reduction measures directly reduces carbon footprint. Carbon avoidance via carbon offsets and direct carbon reduction measures improve air quality, protect ecosystems, and aids in climate change mitigation. The effectiveness of carbon avoidance depends on the type of project and reliability to execute. Carbon avoidance via direct carbon reduction measures is effective because it cuts emissions at their source.

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Key Growth Drivers & Trends

1. Regulation & Compliance Pressure
   Governments across many regions are tightening carbon emission regulations, mandating businesses to offset or reduce emissions. This boosts demand in the compliance segment.
2. Net Zero Targets & Corporate Commitments
   Companies aiming for net-zero emissions are increasingly investing in both avoidance/reduction projects and removal/sequestration projects. To meet residual emissions, removal technologies are becoming especially important.
3. Nature-Based vs. Technology-Based Removal
   • Nature-based solutions (forestry, land-use, afforestation, reforestation) are taking a significant share due to co-benefits like biodiversity, ecosystem services, and lower costs.
   • Technology-based removal (direct air capture, biochar, etc.) is the fastest-growing sub-segment, as innovation and investment increase.
4. Regional Differences
   • Europe is expected to hold the largest share, largely due to stringent climate policies and high awareness.
   • Growth is strong globally, with major activities in North America, Asia Pacific, and emerging economies.
5. Project Types & Sectors
   The voluntary market is sub-segmented by project types such as forestry and land use, renewable energy, waste disposal, industrial manufacturing, energy efficiency/fuel switching, and more.

Key Players in the Carbon Offset Market

The global carbon offset market is dominated by a few major players that have a wide regional presence. Some of the prominent companies include:

• South Pole Group (Switzerland)
• 3Degrees (US)
• Finite Carbon (US)
• EKI Energy Services Ltd. (India)
• NativeEnergy (US)

What Lies Ahead

• As net-zero deadlines approach, demand for removal/sequestration offsets will likely increase substantially. Nature-based solutions will remain important, but technological carbon removal will see more investment.
• Markets may see more standardization and regulations to ensure higher integrity of offsets.
• More corporate transparency will be expected: disclosing sources of offsets, price, risk, permanence etc.
• Emerging economies may become more active, both in supplying offsets (forests, land-use) and in demand side as regulations and voluntary frameworks spread.

The energy companies have accelerated their participation in reducing carbon emissions, which is helping the carbon markets grow by reducing carbon footprints and creating demand for carbon offset. Carbon offset fund renewable energy projects and help lower the carbon intensity of the energy supply and the energy conservation projects that seek to reduce the overall energy demand.

Related Reports:

Carbon Offset/Carbon Credit Market by Type (Voluntary Market, Compliance Market), Project Type (Avoidance/Reduction Projects, Removal/Sequestration Projects (Nature-based, Technology-based)), End-User and Region - Global Forecast to 2028