investment viewpoints

A new dawn for voluntary carbon markets?

A new dawn for voluntary carbon markets?
Lorenzo Bernasconi - Head of Climate and Environmental Solutions

Lorenzo Bernasconi

Head of Climate and Environmental Solutions
Morten Rossé - Head of Nature and Climate

Morten Rossé

Head of Nature and Climate

The Integrity Council for the Voluntary Carbon Market (ICVCM) recently introduced its long-awaited Assessment Framework aimed at enhancing transparency and credibility in the voluntary carbon market. These guidelines have the potential to boost confidence and participation, while driving price differentiation for high-quality credits in a market projected to grow to about USD 250 bn within the next decade.


Need to know

  • The ICVCM’s proposed framework for assessing carbon credits will, we believe, raise the bar for the voluntary carbon market
  • Leading carbon standard setters and industry groups have already started to align with the new framework, underscoring its importance
  • The guidelines may slow demand temporarily until the framework is fully implemented. However, over time they will bring more clarity and trustworthiness to the market by labelling top-tier carbon credits 


Potential and pitfalls

The voluntary carbon market (VCM) has the potential to play a critical role in advancing the net zero agenda.  Unlike cap-and-trade carbon markets, which work on the principle of set emissions budgets, the VCM allows entities such as corporations and individuals to offset their emissions voluntarily.  This is achieved by purchasing carbon credits generated from projects that reduce or remove carbon from the atmosphere.  In so doing, the VCM holds the promise of channeling vital resources at scale to environmental projects globally.

For example, a significant portion of VCM projects focus on nature-based solutions (NBS) aimed at conserving and rejuvenating natural habitats. NBS projects have the potential to provide up to 37% of the emissions reductions necessary to achieve the goals of the Paris Agreement, while also promoting invaluable benefits to biodiversity and local communities.2  And yet, today there is an estimated financing gap for nature of USD 700 bn per year.3

From an investment standpoint, the VCM has significant potential for growth. Estimated at USD 2 bn in 2020, its value is projected to jump to as high as USD 250 billion within the next 10 years1, offering exciting opportunities for impact-aligned returns and diversification. 

To attain this, however, the market urgently requires well-defined, universally recognised standards. The current lack of established norms and governance has introduced challenges around the quality of carbon credits, which has dampened confidence and inhibited growth.

Raising the bar

The ICVCM, an independent governance body, unveiled the Assessment Framework in July. It sets out the criteria for identifying high-quality carbon credits and evaluating whether they meet the Core Carbon Principles (CCPs) that the group released in March.

The CCPs present 10 principles for generating high-quality carbon credits that have a real and verifiable impact on the climate. They are divided into three areas: emissions impact, governance and sustainable development.

The CCPs are a set of interlinked principles to define a threshold standard to ensure integrity in the voluntary carbon market. 


  1. Additionality
  2. Permanence
  3. Robust quantification of emission reductions and removals 
  4. No double counting


  1. Effective governance 
  2. Tracking
  3. Transparency 
  4. Robust independent third-party validation and verification 


  1. Sustainable development benefits and safeguards
  2. Contribution to net zero transition

Source: The Core Carbon Principles - ICVCM 

To be recognised as CCP-compliant, a carbon credit must satisfy the criteria outlined in the two-tiered Assessment Framework:

  1. Program-Level Requirements: The standard or registry responsible for issuing the carbon credit must meet specific requirements. These rules determine the overall acceptability of the program.
  2. Category-Level Assessment Framework: Carbon credits are classified into categories by ICVCM, defined by shared traits such as the mitigation activity and registration under a specific carbon-crediting program. These categories must adhere to an additional set of rules assessing their methodological aspects and related factors. 

To become CCP-eligible, programs must pass both assessment levels. The ICVCM based its requirements on CORSIA.  

Notable criteria for CCP eligibility include:

  • Additionality tests: Additionality refers to aspects that show emissions reductions are only possible with support from carbon credit sales. The tests include meeting host country legal requirements and an analysis of barriers to investment.  
  • Permanence: Projects must commit to compensating for any reversals of emissions reductions that happen within 40 years and ensure that at least 20% of their carbon credits are set aside in a `buffer pool’
  • Robust quantification: The requirement to choose the most conservative value or quantification methodology to address the inherent uncertainty.  In addition, only carbon credits issued ex-post (after verified emission reductions have already occurred and been validated) may be eligible for CCP approval
  • Contribution to net zero transition: The exclusion of carbon credits generated from activities that are incompatible with achieving net zero emissions by mid-century

Special consideration is given to Jurisdictional REDD+ programmes (projects which cover entire jurisdictions or states) for additionality and permanence. These must also contribute to a buffer pool over the 40 years, but there is no ongoing monitoring of permanence beyond established crediting periods. This recognises the unique ways that these programs operating at national or large subnational levels address permanence by virtue of the scale of the required reductions.  

Key Takeaways:

  • The Framework will drive price differentiation: The ICVCM's guidance will drive premium pricing for high-quality, CCP-compliant carbon credits, including Jurisdictional REDD+ programs.  We have already seen market signals of an uptick in prices for these. 
  • Other carbon credits will become less valuable, even potentially stranded assets: Certain carbon credit projects will not meet the requirements for CCP eligibility.  Others may face diminished demand unless they adapt.  For example, currently only projects registered with the American Carbon Registry (ACR) and Climate Action Reserve (CAR) meet the 40-year monitoring period required for nature-based projects (excluding Jurisdictional REDD+ programs).  This shift will prompt carbon-crediting programs to enhance their methodologies, as signaled by updates made to the Verified Carbon Standard (VCS) program by the carbon credit certifier Verra.  The Voluntary Carbon Markets Integrity Initiative (VCMI) Claims Code of Practice, the primary guide for buyers, insists on the exclusive use of CCP-compliant credits for credible climate claims.
  • Implementing the framework may temporarily slow market demand: The ICVCM aims to issue the first CCP labels by the end of 2023. However, the final approved categories will depend on ICVCM working groups assessing individual methodologies. This could lead to delays in accrediting them, particularly for those that are more complex, slowing demand until there is more clarity.  Ultimately, however, the aim is to bolster the integrity of the VCM, driving greater demand and higher prices for CCP-compliant credits.
  • Standards will evolve to ensure high quality along with future best practices and knowledge: The ICVCM is planning the next iteration of the CCP Framework for 2026. The market must prepare for even more ambitious standards, including longer monitoring and compensation periods of 100 years. This commitment to continual improvement will further raise the bar for carbon credit projects.
  • Open questions: The types of credits that receive the CCP tag will depend on how the working groups interpret the standards, many of which do not have specific thresholds or guidelines. For example, the Assessment Framework calls for robust quantification, without specifying what this entails. This ambiguity creates uncertainty about which methodologies will qualify and how these standards should be interpreted. It also remains to be seen how anticipated changes to CORSIA requirements might influence approved methodologies.

Looking forward

Prominent carbon standard setters like Verra and Gold Standard have already welcomed the Assessment Framework, signaling a promising reshaping of the market landscape. We now await the ICVCM's prioritised and approved methodologies, with the first CCP-approved categories due by year-end. This will provide more insight into the market's future trajectory.

The release of new frameworks and standards signals the increasing maturity of the VCM. It is still early days, however, with significant potential for further growth and development.

Carbon markets offer investors the potential for returns and diversification, while supporting the transition to a net zero and nature positive economy. At LOIM, carbon is core to our 3 + 1 framework, and we believe it is one of the most exciting opportunities of the climate transition.

For more information about our Global Carbon Opportunity strategies, please click here.


1Voluntary carbon markets: Close to tipping point, Barclays (August 2023) 

2Climate Explainer: Nature-Based Solutions (

3Scaling Financing for Nature Based Solutions (

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