Carbon Markets Need Less Debate About Standards and More Deployment of Capital

The focus over recent years has been overwhelmingly on trust, integrity and standards. Those concerns are legitimate. But the continued emphasis on what is wrong with carbon markets has come at a direct cost to what we actually need: capital flowing into credible projects at the scale the climate requires.

I have spent over two decades in international banking and managing multinationals. I have watched nascent asset classes mature, stumble, face a crisis of confidence, and either build the institutional infrastructure required to scale or collapse into irrelevance. Carbon markets are at that inflection point right now. The question is whether the people shaping them, regulators, standard-setters and policymakers, fully understand what institutional capital requires before it will deploy at scale.

The answer, based on what I see every day in the market, is not yet.

While carbon markets have lost confidence in the past due to bad actors and poor-quality projects that exploited weak integrity standards in the VCM, the market has responded significantly. In recent years, substantial progress has been made to raise quality benchmarks and remove low-integrity supply, including the work of the Integrity Council for the Voluntary Carbon Market, the United Nations Framework Convention on Climate Change’s emerging Paris Agreement Crediting Mechanism, and new government-led standards such as the EU’s CRCF and the UK’s GGR Standard. The conversation must now shift to scale and execution. To achieve that, we need to build, at pace, the financial infrastructure that every mature asset class takes for granted.

Carbon markets did not lose institutional confidence simply because of isolated failures. They lost it because the market lacked the basic components that underpin every mature asset class. Investment-grade due diligence frameworks. Standardised transaction structures. Long-term offtake agreements with enforceable delivery obligations. Clear accounting treatment. Auditable MRV with real-time monitoring rather than annual manual reporting.

These are not integrity problems in the philosophical sense. They are market architecture problems in the practical sense. And the distinction matters, because the solutions are different.

Tighter standards and disclosure requirements, as important as they are, do not build investment-grade markets on their own. They create the conditions under which those markets can exist. But without participants who can structure transactions, originate credible supply and connect capital to projects, those standards remain aspirational rather than operational.

The voluntary carbon market needs both. Right now it is getting a lot of the former and not nearly enough of the latter.

The European Union Emissions Trading System remains the most significant example of what effective carbon pricing can achieve. As the largest compliance carbon market in the world by value, it has been a central pillar of European climate policy for nearly two decades, contributing to a reduction of emissions in covered sectors of over 50%.

That progress has not come from perfect policy design. It has come from something more important: a durable and credible price signal. One that allows companies to integrate carbon cost into long-term financial planning and capital allocation decisions.

Recent political pressure on the scheme risks undermining one of the clearest pricing signals currently available to markets. Weakening that signal would not just affect emissions outcomes, it would directly impact investment behaviour.

The introduction of the Carbon Border Adjustment Mechanism (CBAM) has extended that signal beyond Europe, accelerating the development of carbon pricing frameworks in other jurisdictions including Türkiye, Brazil, China and India. These systems are not perfect. But they are functioning mechanisms that begin to align incentives with emissions reduction.

Sector-specific multilateral efforts are also emerging. The Carbon Offsetting and Reduction Scheme for International Aviation has introduced carbon pricing into the aviation sector, while the International Maritime Organization framework reflects the complexity of building consensus across global industries. These frameworks are often the product of compromise, creating signals that may be weaker than climate science would demand, but strong enough to begin shifting market behaviour.

The ambition of a single, coherent global carbon price remains unlikely in the near term. What is achievable is a patchwork of national, regional and sectoral systems that, collectively, provide sufficient direction of travel.

For capital markets, the question is not whether these frameworks are perfect. It is whether they are durable and consistent enough to justify long-term investment. Increasingly, the answer is yes.

There is a persistent misconception in the carbon markets debate. That capital is waiting on the sidelines for markets to become more virtuous.

In reality, capital is waiting for markets to become investable.

Investable means clear return profiles with defined risk parameters. It means due diligence processes that satisfy internal credit committees. Transaction structures that legal and compliance teams can sign off on. Accounting treatment that does not create reporting uncertainty. Exit mechanisms that do not rely on a single counterparty.

Very few carbon removal transactions today meet all of these criteria simultaneously. Not because the underlying projects lack credibility, but because the financial and transactional layer has not yet caught up with the scale of climate ambition.

This is the work Carbonaires is focused on. Structuring transactions that meet institutional requirements. Developing financing and streaming models that allow family offices, impact funds and trading counterparties to access high-quality carbon removal with defined risk-adjusted returns. Creating portfolio frameworks that allow corporates to treat carbon removal as a long-term asset class rather than an annual compliance cost.

It is detailed, operational work. It does not generate headlines. But it is the work without which capital does not move.

There is a version of this conversation that ends with consensus around the need for better standards, stronger regulation and deeper multilateral cooperation, followed by a pause while those systems evolve.

That pause is not neutral. It is a misallocation of time in a decade where speed matters.

The companies and investors who will be best positioned in carbon markets by 2035 are not those who waited for regulatory clarity. They are those who built capability, secured early positions and developed portfolios while the market was still forming.

Fragmentation creates complexity. But in financial markets, complexity often creates opportunity for those equipped to navigate it.

The carbon market is not waiting to be regulated into existence. It is evolving in real time. The constraint is not direction. The constraint is whether the market can build the investment-grade infrastructure required for capital to participate with confidence.

The Integrity Council for the Voluntary Carbon Market has advanced important work on quality benchmarks. The European Commission has demonstrated leadership through ETS and CBAM.

But there is a question that remains under-addressed.

Who is responsible for building the financial market infrastructure that turns these frameworks into actual capital deployment?

Regulation defines the rules. Standards define quality. Policy sets direction.

But none of these functions, on their own, move capital.

That requires market participants who understand both climate science and capital markets. Who can structure transactions, manage risk and build the institutional relationships required for capital to flow at scale.

Carbon markets are not constrained by a lack of ambition or capital. They are constrained by the pace at which this market infrastructure layer is being built.

Until that happens, the gap between climate ambition and capital deployment will persist, regardless of how strong the regulatory narrative is.