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Net-Zero Navigator: Carbon markets opportunities
In 2024, global carbon pricing revenues hit over USD 100 billion, covering almost 30% of global emissions1. At the same time, voluntary carbon markets were valued at USD 1.4 billion2. Although these markets currently serve different roles, we anticipate they'll merge as countries aim to incorporate carbon removal into their climate strategies and pricing systems, pushing the 'net' in net-zero transition.
Compliance vs Voluntary – is there a path to convergence?
The global carbon market has gone through multiple stages since the Kyoto Protocol introduced an international carbon market around 30 years ago, mostly due to the complexity of establishing such a market. With the impending COP30 climate talks and EU carbon border adjustment mechanism (CBAM), we think the implementation and read-across into economic activity from global carbon markets will be back in the spotlight. We expect a closer integration between compliance and voluntary mechanisms, and see three catalysts for the shift.
- COP30 and Nationally Determined Contribution (NDC) updates: As COP30 draws closer, we expect to see more updates on country climate plans, with carbon removal more of a focal point for decarbonisation. With operationalisation of the Paris Agreement Article 6 – the clause that tackles international carbon transfer – and advocacy of the hosting country, we thus think carbon markets and carbon removal are likely to be a focus at COP30 in November 2025.
- The EU CBAM: The EU CBAM will come into force on 1 January 2026, with EU importers required to pay for the embedded emissions of their imported CBAM goods. We think the EU CBAM catalyses connectivity to other countries’ carbon pricing mechanisms to alleviate competitiveness issues, and encourage trading partners to establish and expand their own carbon pricing mechanisms.
- Borderless carbon control: In our view, carbon pricing mechanisms on international shipping and aviation could also stimulate market interest in both compliance and voluntary carbon markets. As the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) units are primarily sourced from voluntary carbon market, the transition from voluntary to mandatory implementation of CORSIA should strengthen the connection between the voluntary and compliance carbon market.
In our view, convergence of compliance and voluntary carbon markets would create synergies in emissions control, financing the net-zero, and inclusive resilience.
Carbon pricing policies have proven their decarbonisation potential historically3. Current coverage of carbon pricing mechanisms is nearly 30% of global emissions, with at least 11 more compliance carbon pricing mechanisms under development4. We expect to see the share of priced emissions increase, as tighter control over emissions at a country level combined with more widespread trading schemes span geographies. However, we estimate that only 3% of global emissions were priced above the recommended level (i.e. USD50-100/tCO2e by 2030) to keep global warming below 1.5°C, based on data from the World Bank Carbon Pricing Dashboard. It means that current carbon price levels and coverage are insufficient to reach net-zero or keep the Paris Agreement’s temperature goal alive.
3%
of global emissions priced above the recommended level to keep global warming below 1.5°C.
Carbon removal is increasingly in focus as part of the country toolkit to reach net-zero5 . The voluntary carbon market (VCM) has also been playing a key role in mobilising capital towards carbon removal projects. However, price variability in the VCM leads to an uncertain revenue stream, which constrains the scaling up of carbon removal projects. With potential inclusion of carbon removal in the EU ETS, operationalisation of the Paris Agreement Article 6 and start of the mandatory phase of CORSIA, we expect to see more interlinks between compliance and voluntary carbon markets. We believe the convergence will enhance the revenue stability of carbon removal projects and justify further investment for larger scale infrastructure.
Voluntary carbon markets have been supporting nature-based solutions (NbS), such as forestry and mangroves, which build resilience against climate risks. We believe increasing interlinks between compliance and voluntary carbon markets would scale up NbS as it would become possible to direct more funding to NbS projects, which currently receive just 3% of public mitigation investment, despite their major climate and resilience benefits6. In addition to streamlining financing, carbon market convergence could improve NbS project integrity and expand access to projects for communities, businesses, and governments, addressing both environmental and social needs through achieving large-scale climate adaption.
35%
Global cumulative climate mitigation potential of NbS activities by 2050 (Climate Focus)
Governance is vital for carbon market integrity and progress toward net-zero. Compliance markets have government oversight, while VCM lack a central regulator, raising risks but allowing flexibility. Independent bodies and new government guidelines seek to improve VCM standards but project credibility concerns remain. We think more alignments between compliance and voluntary market would lead to stronger governance and thus would build trust, credit quality, and effectiveness in climate action.
What is the Net-Zero Navigator?
The Net-Zero Navigator is a monthly flagship report from HSBC Sustainability Research that tracks the latest developments in the net-zero space. The aim of this report is to help investors take a view on the three most material issues in terms of delivering a Net-Zero future.
Our Sustainability Approach
Sustainability research is entering a new phase, with the transmission mechanism of issues affecting value creation into financial decision making at its core. We think that delivering a net-zero transition is the most material sustainability issue with the highest likelihood of disrupting growth and asset value potential, both positively and negatively. We expect the economics of driving net-zero outcomes to take centre stage over policy momentum.
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- World Bank Group, State and Trends of Carbon Pricing 2025, 10 June 2025
- OECD, Exploring Governments’ Efforts to Shape Carbon Credit Markets, June 2025
- Döbbeling-Hildebrandt, et al. Systematic review and meta-analysis of ex-post evaluations on the effectiveness of carbon pricing. Nat Commun 15, 4147 (2024).
- World Bank, State and Trends of Carbon Pricing Dashboard
- Energy Transitions Commission, The role of carbon credits in accelerated corporate action, May 2025
- 'Unlocking nature-based solutions through carbon markets: Global analysis of available supply potential’, Climate Focus, December 2022
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