Why the voluntary carbon market is key to scaling carbon dioxide removal and delivering net-zero

The urgency to cut emissions, protect ecosystems, and deploy scalable carbon removal technologies is at an all-time high. Without immediate action, climate change – like more frequent extreme weather and rising sea levels – could reduce global GDP by up to 14% and displace 1.2 billion people as climate refugees by 2050.

Alongside urgent emission reductions, addressing historical and residual emissions through carbon dioxide removal (CDR) is imperative. Despite over 3,400 companies committing to net-zero, only 188 invested in CDR in 2023, with just 14 at over 10,000 tonnes of CO2 according to CDR.fyi. This gap highlights the challenge of turning pledges into real climate action.

The voluntary carbon market (VCM) plays a critical role in scaling CDR to meet global targets: up to 10 gigatonnes annually by 2050. It serves as a key mechanism for mobilizing private capital towards carbon removal projects. The VCM is one of the few transitional finance options capable of addressing the urgent need for large-scale emissions reductions. Investing in the VCM today is not just about immediate carbon mitigation; it’s about laying the groundwork for future scalability and impact. With 50% of net-zero emissions reductions projected to come from emerging technologies by 2050, early market demand by 2030 is essential. Corporations should view the VCM as a pre-compliance market, starting with CDR now to adapt ahead of future regulations.

Support for the VCM is growing in some countries. In May, high-level public officials from various US Federal departments endorsed the VCM as a critical tool to combat climate change, emphasizing high-integrity carbon credits as the cornerstone for an effective VCM at scale.

While VCM has existed for over two decades, it remains in its early stages, marked by controversy and uncertainty for corporate entrants. Companies active in the VCM have invested in managing these risks, but broader adoption requires clearer rules, lower entry barriers, and a stronger business case.

The VCM faces significant challenges that hinder its growth and credibility:

These challenges create complexity and risk within the VCM, discouraging corporate participation in CDR and stalling CDR market growth. If unaddressed, climate action beyond corporate value chains may remain limited, jeopardizing the achievement of global net-zero goals.

To overcome these obstacles and strengthen the credibility of the VCM, a robust trust infrastructure and “incentives” are essential.

While early adopters of CDR have made significant investments to navigate this complex landscape, the next wave of companies requires a more scalable and efficient market infrastructure. Fortunately, the necessary infrastructure including independent digital MRV (dMRV) systems, standards, and insurance options is already in place. These tools help de-risk purchases through rigorous due diligence, meticulous tracking of carbon project data, and independent third-party verification and certification. Additionally, leveraging digital and automation technologies can further enhance efficiency and accuracy in the VCM. For instance, Internet of Things can provide real-time data to dMRV systems, improving the accuracy of carbon removal projects and speeding up verification and credit issuance.

Without a clear linkage between VCM participation and net-zero targets, corporates struggle to establish the link between the rationale for action on a macro level and the tangible mitigation outcomes on a micro level. Companies should be incentivized to adopt beyond-value-chain mitigation (BVCM) activities in addition to deep in-value-chain decarbonization. Market initiatives like SBTi should define how CDR credits contribute to corporate net-zero targets, offering clear guidelines on permanent removals and setting interim CDR targets to guide companies toward their net-zero goals.Governments are a powerful force for moving markets.Through regulation, policy and the direct purchase of technologies or credits, government action brings clarity and stability to industries and help move CDR innovations from the lab to the market. This would also create the confidence and certainty needed to encourage private-sector investors to fund CDR projects. A few governments have started to send demand signals through following mechanism:

Early government signals have already begun to drive private-sector investment, essential for scaling the industry.

To rapidly innovate, implement, and scale up CDR technologies to match growing climate risks, companies and governments must invest in carbon removal solutions today to ensure cost-effective deployment at scale tomorrow. For companies, investing in CDR via the VCM is essential for translating net-zero commitments into tangible climate action.

Companies should:

By taking these steps, companies can make meaningful progress towards their net-zero goals and contribute to global climate resilience.