The market for global carbon credits is different from compliance markets like the EU ETS, the WCI, the RGGI, Korea’s ETS and China’s intensity-based ETS in that it is voluntary. In the latter markets, emissions constitute demand for compliance units, and the annual allowance budget (set by the emission trading system’s cap) constitutes supply. In contrast, firms that choose to purchase and retire carbon credits in order to meet self-set climate change mitigation targets like “carbon neutral” claims or “net zero” goals decide what amount they buy and retire. Absent enforced requirements to surrender credits to regulators, this retirement can represent carbon credit “demand” to the extent that it involves removing an amount of the available credit supply and therefore theoretically affecting the supply/demand balance that determines price.
In practice, the act of retiring a carbon credit is to withdraw its serial number from its registry, such that it cannot be claimed or counted against a tonne of greenhouse gas emission by any other emitter because it has been “used”.
Historical rates of carbon credit retirement thus constitute a loose indicator for what retirement rates (and also attributes of the credits retired) can be expected in the future. Veyt provides such a forecast for carbon credit “supply” based on historical rates of carbon credit issuance – now Veyt also provides a forecast for carbon credit “demand.”
Veyt’s forecast applies two scenarios – one extrapolating historical carbon credit retirement trends from the most recent two-year period forward into the future, and one extrapolating from a longer five-year interval. These are not formal forecasts, but rather business-as-usual proxies assuming that retirers’ past behaviour will continue in the future without major changes. The approach focuses purely on observed trends and not on actual drivers of carbon credit purchasing and retirement rates like amount and stringency of corporate net-zero commitments, firms’ climate change mitigation strategies, or global socioeconomic and policy developments.
Though offsetting as a climate change mitigation practice has existed for decades, the volume of retired credits began to rise significantly from 2010. It accelerated sharply between 2018 and 2021 (see Figure 1) driven by a surge in corporate voluntary emission reduction commitments and rising public pressure for climate action.
Between 2019 and 2021, retirements saw significant year-on-year growth, particularly from 2019 to 2020 and from 2020 to 2021. However, this growth has largely stabilised since 2022. We thus forecast retirement rates under two historical averages:
Applying these averages to historical data, we estimate retirements by registry (ACR, Climate Action Reserve, Gold Standard, and Verra), country, project type (sector), and sub-sector (e.g. ARR, REDD+) for forestry and land-use projects.
We follow the calendar year for the projections, as retirements show strong seasonal patterns. A significant portion of retirements tends to be concentrated around the end and beginning of each year, making calendar-year total retirements more representative of market behaviour.
| A wave of corporate climate change mitigation ambition in the years following the 2015 Paris Agreement saw large firms align themselves with its ambition to keep Earth’s average temperature rise below 1.5°C. From large fossil fuel companies to travel agencies, firms took on “net zero” or “carbon neutral” targets. With voluntary carbon credits being a tool to achieve such targets, investment in mitigation projects, purchase of the resulting credits, and retirement of those credits to offset emissions all increased during that time. The year 2021 marked a peak in retirements, with over 180 million tonnes of CO₂e retired as firms counted them toward their corporate green claims. |
| From 2022, however, carbon credit retirement levels plateaued and even declined slightly in 2023. Market participants and observers have attributed this to increased regulatory uncertainty given that the main climate policy of the world’s biggest cumulative emitter – the Inflation reduction Act or IRA – consisted of non-market-based incentives for climate change mitigation like tax breaks for renewable energy. These years also saw increased scrutiny of carbon offsetting, with media reports and academic studies highlighting projects that over-estimated the number of credits their mitigation activity produced as well as greenwashing claims on the part of buyers. |
| Retirement levels have not returned to the aggressive growth trajectory seen pre-2021. Buyers are becoming more selective, favouring credits with robust additionality and permanence—such as those aligned with emerging Core Carbon Principles and high-integrity labels. |
| For this reason, our retirement forecast includes two distinct scenarios based on the underlying growth rates. |
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Veyt specialises in data, analysis, and insights for all significant low-carbon markets and renewable energy.
