^{Chapter 1:}
The need for
carbon markets

1.1. A scientific consensus

Recent decades have seen increasing agreement and clarity over the need for economies to abate greenhouse gas emissions. The Paris Agreement⁵ codified this position and has set the pathway for countries to reduce and remove emissions. Consequently, over 90% of global gross domestic product (GDP) is covered by a net zero target, and thousands of corporates have set out some form of commitment to reduce and remove emissions.⁶

Although these targets require extensive and urgent decarbonisation efforts, this alone will not be enough. Net zero targets are rarely zero emissions targets; the ‘net’ requires emissions to be ‘neutralised’/‘offset’ to some degree. This is a core part of the Paris Agreement, notably Article 6, and was a central part of the preceding Kyoto Protocol⁷, which laid the early foundations for carbon markets and international climate cooperation.

Over the last 10 years, the science supporting the need to neutralise emissions has become clearer. The Intergovernmental Panel on Climate Change (IPCC), the United Nations’ (UN) scientific advisory body, has calculated that the planet will need between 100 and 1000 megatons of carbon to be removed by 2050.⁸ It has also stated that the world needs 11.3 million km² of afforestation — an area the size of Brazil, to meet the IPCC 2050 target.² The UK government, for example, plans to ‘offset’ 75 mtCO₂e in its net zero year of 2050.⁹

These developments are filtering through market standards bodies. The UK Committee on Climate Change stresses that both engineered removals and natural offsetting are critically important for countries, particularly the UK, to achieve their net zero targets by 2050.¹⁰ The Science Based Targets initiative (SBTi) recently announced that a key aim of its new net zero standard is to provide “opportunities to scale carbon removals and mobilise climate finance above and beyond the requirement for the direct decarbonisation to meet emissions reductions targets.”¹¹

_⁵_{parisagreement_publication.pdf}_⁶_{Net Zero Tracker}_⁷_kpeng.pdf_⁸_{IPCC report}

_⁹_{UK government energy white paper}_¹⁰_{Climate change committee}_¹¹_{SBTi corporate net-zero standard, V2 2025}

1.2. A growth opportunity

As the SBTi argues, carbon markets can support the mobilisation of climate finance to achieve net zero. In total, trillions of dollars are needed annually to help the world achieve its climate goals. Carbon markets can channel upwards of US$1t a year, according to upside analysis by BloombergNEF.¹² According to BeZero, a carbon markets rating company, US$1t of finance per year needs to be mobilised to meet the IPCC’s carbon removals requirements alone.¹³

There are considerable investment opportunities beyond direct investment into projects. Secondary markets can support significant liquidity, price signals and benchmarks in financial markets. Similar markets – such as crude oil – see secondary markets trade at 5-10x multiples. More broadly, should carbon resemble other markets, there should be an additional US$245b investment opportunity across the entire carbon value chain and wider ecosystem. Furthermore, sectors such as financial services, insurance and data services are likely to benefit from this opportunity, receiving around US$27b, which represents c.8-10% of the total opportunity.⁹

This investment not only supports the development of carbon abatement projects, but also wider ecosystem services, jobs and start-ups. In total, c.US$26b of investment into carbon markets startups in the last six and a half years globally have led to job creation and opportunities – for example, it has created at least 2,000 jobs in the UK.^14,15 The UK is a particularly strong home to such entities, with notable startups in the carbon ratings, verification and registry spaces. Singapore has established data services and carbon market exchanges.

These new jobs should largely be scientific, engineering and technology positions, which are more likely to be high income and contribute to economic growth. The International Monetary Fund (IMF) concludes that “green” jobs offer significant wage premiums, at 7% for men and 12% for women.¹⁶ Moreover, similar to the energy sector, carbon-related jobs and activities should generate significant spillover effects, supporting the development of, for example, digital architecture, nature mapping and maintenance approaches, and new technologies with applications across the economy.

_{¹² BloombergNEF:Global Renewable Energy Investment Still Reaches New Record as Investors Reassess Risks}
_¹³_BeZero_{¹⁴ EY-Parthenon value chain investment analysis, 2025
¹⁵}_{UK Government; major carbon capture project to deliver jobs and growth}_¹⁶_IMF;_{Green jobs and the future of work for women and men}

1.3. Investment into emerging economies

A significant proportion of net zero investment should flow into projects in emerging and developing economies.¹⁷ According to the dataset constructed by University of California (UC) Berkeley, emerging countries account for 54% of all global carbon projects (more than 5,500 projects).¹⁸ Africa and Asia-Pacific emerging economies provide 3,731 of these, representing 68% of the total projects in this category.¹²These regions host 38% of projects globally, indicating a strong preference for generating credits from emerging regions.¹² Brazilian project developers have executed significant agreements with Microsoft and Frontier buyers in recent years. Notable deals include the agreement between Microsoft and BTG Pactual Timberland Investment Group (TIG) for 8 million tonnes of carbon through reforestation, as well as Frontier buyers’ deal with Terradot involving enhanced rock weathering.^19,20

This activity not only shows the wider social and economic benefits of carbon investment, but also the opportunities for connecting these deals to sovereign foreign aid and investment. Governments and multilateral development banks, such as the World Bank, can use the cashflow potential of such projects to catalyse investment, employing familiar levers to de-risk investments, to crowd in further capital. This could include guarantees, offtakes or debt to support the flow of private capital.

Carbon markets can also extend the range of assets to invest in emerging economies. For those countries looking to move away from coal (in line with international and domestic commitments), carbon can provide an alternative cashflow to energy sales for owners of decommissioning coal-fired power stations. For example, in May 2025, the Rockefeller Foundation announced plans to phase out 60 coal-fired power stations in emerging economies by 2030, using carbon credits to mobilise US$110b in finance.²¹ This market-based approach speeds up the transition from otherwise economic assets, without relying on taxpayer funding.

_{¹⁷ Emerging countries considered to be the following; China, India, Indonesia, Malaysia, Philippines, Thailand, Vietnam, South Korea, Taiwan, Brazil, Mexico, Argentina, Colombia, Chile, Peru, Russia, Turkey, Poland, Hungry, Romania, Czech Republic, Bulgaria, Ukraine, South Africa, Egypt, Nigeria, Morocco, Saudi Arabia, United Arab Emirates, Qatar, Iran, Oman
¹⁸}_{Barbara K Haya, Tyler Bernard, Aline Abayo, Xinyun Rong, Ivy S. So, Micah Elias. (2025). Voluntary Registry Offsets Database v2025-02, Berkeley Carbon Trading Project, University of California, Berkeley.}_¹⁹_{Microsoft x BTG direct offtake deal}_²⁰_{Frontier buyers x Terradot direct offtake deal}_²¹_{New carbon credit scheme targets 60 plants by 2030 for coal phaseout | Reuters}

1.4. Time value of carbon

Given the urgent need to prevent catastrophic atmospheric damage – and its huge costs – there is a high premium on avoiding and removing carbon now.

UN Secretary General Antonio Gutterres said, “Tomorrow is too late. Now is the time to mobilise, now is the time to act, now is the time to deliver”, signalling an important call to action.²² Recently, the Sustainable Markets Initiative (SMI) has articulated the importance of corporate leaders recognising the ‘time value of carbon’, much as they would money:

Corporates should understand the "time value of carbon," where early investment or purchases of carbon sequestration are more valuable than delayed action and use credit-generating activities as an opportunity to manage climate-related business risks and enable a capital-efficient transition.²³

Investment should precede this environmental impact, with break-even profiles for some projects running into the decades. For instance, growth rates of some nature removals projects can mean that carbon yields do not mature for 15 plus years. It’s a similar story for some technology removal projects, which may take years to develop, raise finance, secure permitting approvals to proceed and, ultimately, build and commission. Carbon markets can help with the financing and business economics of these projects by providing demand guarantees, for example, for the delivery of carbon years into the future. However, it is vital to give buyers and investors confidence in the market, to gain financing and commit to purchases.

How this happens is the subject of the second section of this paper. There is a first-mover advantage for economies that build markets and capture the above benefits. But any market, however well-constructed, requires demand to function.

_²²_{UN Secretary General quote}_{²³ SMI,}_{Engaging CEOs: Voluntary Carbon Market Mobilisation Guide,}_{March 2025}