Ho Dac Thai Hoang
Chairman of HUSTA
Between 2019 and 2021, carbon markets saw remarkable growth, with the transacted volume of Nature-based Solutions (NbS) carbon credits soaring from 5 million to 28 million (Climate Focus, 2023). This boom was driven by increasing corporate interest in carbon neutrality and net-zero goals. However, since 2021, the market has plateaued, influenced by economic stagnation due to the COVID-19 pandemic and criticism of certain Voluntary Carbon Market (VCM) projects, such as overestimated avoided emissions in REDD+ projects (World Bank, 2023).
In 2021, NbS projects accounted for over a third of total credit issuances, significantly surpassing the energy sector by 46% (Wollenberg et al., 2022). A notable portion of this growth came from afforestation, agricultural carbon sequestration, and improved forest management, which together contributed to 20% of the total increase in credits (World Bank, 2022). Despite this, investments in NbS primarily focus on forestry. In 2021, only 1% of carbon credits from the four largest standards—American Carbon Registry (ACR), Climate Action Reserve (CAR), Gold Standard (GS), and Verified Carbon Standard (VCS)—were allocated to agricultural projects in contrast to 42% for forestry and other land use projects (So et al., 2023). The share of agricultural credits grew slightly from less than 1% in 2021 to 1.3% in 2022. However, scalability and widespread adoption of agricultural carbon markets face challenges outlined in subsequent sections.
Voluntary Carbon Market Issuance and Retirement from 2002 to August 2024
While NbS volume growth is straightforward to track via carbon registries, price development remains to be seen due to numerous over-the-counter transactions. Since 2019, prices for long-term agricultural carbon credits in developing countries have risen from around USD 4 to USD 10-15 per credit. Spot market prices are even higher, ranging from USD 20-30 per credit (Unique Land Use, 2023). This price disparity reflects the significant co-benefits associated with agricultural carbon projects, making them more attractive to investors compared to other NbS types.
The VCM’s expansion is largely fueled by increasing corporate commitments to carbon neutrality and net-zero targets, supported by initiatives such as the Taskforce on Scaling Voluntary Carbon Markets. However, a report by Bloomberg NEF highlighted a 4% decline in offset purchases in 2022 compared to 2021, potentially due to skepticism about the effectiveness of offsetting as a climate solution. In response, governments are starting to impose regulations on environmental claims. The EU Green Claims directive, for instance, restricts net-zero claims to those backed by verifiable data. Future VCM growth may hinge on stringent quality standards and a focus on carbon removal to enhance market confidence, increase prices, and drive demand. Forecasts from BCG and Shell (2022) suggest the market could reach a value of $10-40 billion by 2030.
Geographic Distribution of Voluntary Carbon Credits Issued in 2024 (Vietnam: 16,503,249 tCO2e)
Another emerging trend is ‘insetting’ where companies invest in projects that decarbonize their own agricultural value chains to achieve net-zero targets. Although currently a small segment of NbS projects, insetting is expected to grow in the coming years, guided by frameworks such as the Science Based Targets Initiative FLAG guidance and the GHG Protocol Land Sector and Removals Guidance.
References
BCG and Shell 2022. The voluntary carbon market: 2022 insights and trends. Available at https://www.shell.com/shellenergy/othersolutions/carbonmarketreports
So, I. S., Haya, B. K., and Elias, M. (2023). Voluntary Registry Offsets Database v7.1. Berkeley Carbon Trading Project, University of California. https://gspp.berkeley.edu/faculty-and- impact/centers/cepp/projects/berkeley-carbon-trading-project/offsets-database
Unique land use 2020. Soil carbon project development. Best practice study
Wollenberg, E., Tennigkeit, T., Dinesh, D., Baumert, S., Röhrig, F. Kirfel-Rühle, L., Zeppenfeldt, L. 2022. Compensating farmers for ecosystem services: Lessons and an agenda for innovation. CompensACTION Policy Brief
World Bank; 2022. World Bank: State and Trends of Carbon Pricing 2022. Washington, D.C.: http://hdl.handle.net/10986/37455
