The voluntary carbon market has been in a slump. Amid a wave of negative press, the volume of credits traded has declined for three consecutive years, according to Ecosystem Marketplace, an information source for environmental markets. Prices have followed suit: After more than doubling between 2020 and 2022, the average cost of a carbon credit has since declined 14 percent, hitting $6.34 in 2024.

Yet buyers should not assume this state of affairs will persist, according to experts. New sources of demand are poised to disrupt the market, raising the likelihood of substantial price increases, particularly for high quality credits. 

“It is definitely worth looking at carbon markets now, because the period of time when there were cheaper options available is probably coming to an end as you see these various demand pools start to kick in,” said Sebastien Cross, chief innovation officer and co-founder at BeZero Carbon, a carbon credit ratings agency.

Four trends to watch

1. Nation states are entering the market

Proposals for an updated EU climate plan, released last week by the European Commission, require member countries to reduce emissions by 90 percent below a 1990 baseline by 2040. Critically for carbon markets, the commission suggested that credits equal to 3 percent of the 1990 total can be used to hit that target. 

The commission has not yet specified what kind of credits can be used, but demand from EU countries will likely absorb credits that would otherwise be available to corporate buyers. If countries max out their 3 percent allowance, just over 140 million credits would be used in 2040, according to an analysis of the proposal by the Oeko-Institut, a German research organization. That’s close to half the total number of credits issued in 2024, per Ecosystem Marketplace.

The commission’s proposals now need to be debated by member states. But another international agreement — Article 6 of the Paris Agreement, finalized at last year’s COP negotiations — is already being used by countries to trade credits: Last month, Switzerland and Norway became the first countries to use Article 6 to do so.

2. Compliance markets are spreading

Compliance markets are government-run schemes that require specific sectors to decarbonize and can include credit trading. They used to operate largely independently of the voluntary carbon market, but that’s changing as new compliance schemes pop up around the world. 

The spread is driven in part by the E.U.’s Carbon Border Adjustment Mechanism (CBAM), a tax on imported steel and other high-emission commodities that will take effect in January 2026. Companies exporting CBAM goods to Europe can avoid the levy if they have already paid a carbon price at home, which has prompted several countries to set up their own compliance schemes. Many of these allow companies to meet a fraction of their mandatory emissions reduction using carbon credits. In Singapore, the fraction is 5 percent; in Vietnam, 30 percent.

“These are small countries that don’t have that many emissions,” said Anton Root, co-founder of AlliedOffsets, which provides data on carbon markets. “But add them all together and you’re starting to look at the market growing in a pretty meaningful way.”

Japan is one of the largest economies to be developing a compliance scheme. Participation will become mandatory next year, with hundreds of companies accounting for more than half of Japan’s emissions involved. Companies in the scheme can use credits to offset up to 5 percent of annual emissions, which AlliedOffsets estimates could generate demand for arou