The carbon credit market is an increasingly vital part of global climate efforts. Public awareness, corporate social responsibility, and innovative solutions like blue carbon projects are all driving the increased interest in this market. The global value of this market could reach $50 billion as early as 2030, according to a recent report.

A carbon credit is a certificate that represents one metric ton of reduced, avoided or removed greenhouse gas emissions. It’s used to compensate for a business or individual’s emissions under a compliance scheme, such as a cap-and-trade program, or to meet carbon neutrality goals set by companies themselves. These credits can be purchased by a range of businesses, including utilities, oil and gas companies, and even cities and states. The credits are a way for companies to demonstrate their climate commitment to consumers and investors, as well as to meet their own emissions targets.

There are five main players that make up the engine of the carbon credit market: project developers, broker/financial traders, end buyers, and rating agencies. Project developers set up the projects that are issuing credits – these can be anything from large-scale industrial-style projects such as a hydro plant to more community-based ones such as clean cookstoves. These projects are typically financed by banks and investors. The credits they produce can be sold to brokers or financial traders, who then sell them on to end buyers – the resulting carbon credits are known as offsets.

These carbon credit market are typically backed by government or independent standards. For example, Verra and Gold Standard are two of the leading independent crediting systems. Independent organizations also certify the projects that generate carbon credits, which is critical to the overall credibility of this market. At COP28, six of these independent certifiers came together to improve coordination and reduce duplication of effort.

Many of the players in the market have overlapping roles, just as they do in other commodity markets. For instance, some projects are financed by financiers that also act as brokers, and the same goes for some of the trading platforms. Rating agencies and carbon buyers are also overlapping, with some having both brokering arms and project development arms.

While the demand for carbon credits is growing, the supply side of the market remains fragmented. This is despite the fact that there are several initiatives aimed at improving the quality of carbon credits, and helping to organize the market in a more centralized manner.

Ambitious companies, governments, and individuals are increasingly purchasing carbon credits as a means to reach net zero or even negative emissions. Microsoft, for example, has pledged to be carbon negative by 2050 and to nullify all its previous emissions since its founding through the purchase of additional carbon credits. The key for the carbon credit market to reach its full potential will be for these projects and their purchasers to better communicate the benefits of carbon credits, to ensure that they’re being used to offset actual, real-world emission reductions.