Carbon Credits 101: Five Things to Know About the Market That Could Shape Our Climate Future
The future of carbon credits hinges on trust, and whether credibility can catch up with ambition.
Carbon credits are one of the most debated tools in the fight against climate change. At their simplest, they allow companies to offset their emissions by paying for projects that prevent or remove carbon from the atmosphere. But as billions of dollars flow through this market — and billions more hang in the balance — questions of trust, impact, and accountability are defining what comes next.
Here are five things to know about carbon credits: what they are, why they’re controversial, and where the market could be headed.
1. What Are Carbon Credits
A carbon credit is basically a hall pass — or a cheat code — for pollution. When a company buys one, it’s saying: “We put out a ton of CO₂, but we paid for a project somewhere else that cancels that ton out.”
Think of it like eating dessert when you’re on a diet. You go over your calorie limit with a slice of cake, then try to “balance it out” by running extra miles on the treadmill. The cake still happened — but you’re hoping the exercise cancels it. Carbon credits work the same way: the pollution still happens, but you fund something else to offset it.
The catch is proving that offset is real — and that’s why carbon credits are so controversial.
2. Why They’re Controversial
Carbon credits depend on trust, and that trust has been shaky. Critics argue they give corporations a license to pollute while buying “paper solutions.” Investigations have found projects that overstated their benefits, sold duplicate credits, or delivered less carbon savings than promised.
That credibility gap has slowed the market’s growth. Buyers hesitate to pay for offsets that may not stand up under scrutiny, while climate advocates worry companies lean on credits instead of cutting emissions directly.
3. Why the Market Is Stuck
Despite growing interest in climate commitments, the voluntary carbon market stalled in 2024. More than 300 million tons’ worth of credits were issued worldwide, but only 180 million were retired, meaning they were actually used. Prices dropped to about $5 per ton, down 20% from the year before.
Companies are holding back, waiting for clearer rules on what counts as a “high-quality” credit. Without that clarity, funding for projects that depend on carbon credit revenue — from reforestation to direct air capture — is lagging.
4. Why the Market Matters
If credibility issues can be solved, carbon credits could funnel massive amounts of money into climate projects. Analysts estimate the voluntary carbon market could grow from roughly $1.4 billion today to as much as $250 billion by 2050.
That growth would mean more financing for renewable energy, more protection for natural carbon sinks like forests and wetlands, and faster scaling of engineered solutions that directly remove carbon from the atmosphere.
5. Where It’s Going
Policymakers are starting to step in. The U.S. Commodity Futures Trading Commission, Securities and Exchange Commission, and European Union have all released new rules to tighten oversight. California has passed disclosure laws on how companies use credits in climate claims. And international bodies have set new “Core Carbon Principles” to define integrity.
Meanwhile, industries like aviation are preparing for mandatory offset requirements as early as 2027. Companies with 2030 net-zero goals are running out of time, and many will need credits to close the gap. The shift is expected to drive demand for high-quality removal credits, especially those tied to long-term solutions like direct air capture.
The Bottom Line
Carbon credits are neither a silver bullet nor a scam by definition. They’re a financial tool — one whose impact depends entirely on credibility and oversight. Right now, the market is in transition: stalled by questions of trust, but positioned for massive growth if new standards take hold.
For companies, credits could soon move from optional to unavoidable. And for the rest of us, they could determine which climate projects get funded — and how quickly the world moves toward net zero.