Carbon Credits: The Trillion-Dollar Market Hiding Behind a Two-Billion-Dollar Scandal

A carbon credit is a permit.  One credit allows the holder to emit one tonne of CO₂, or the equivalent in other greenhouse gases.  It is also called a carbon offset.  Polluting companies receive credits allowing them to emit up to a periodically shrinking limit, and any surplus gets sold to companies that need more.  Cap-and-trade, in one paragraph.  What follows is why the scale of this system matters far more than most commentary bothers to explain.

The Two Markets are Not Remotely Comparable in Size, & Treating Them as Equivalent is the First Mistake

Global compliance carbon markets reached a trading value of approximately $1.5 trillion in 2024, covering roughly 23% of global greenhouse gas emissions across 46 national and 37 subnational jurisdictions.  The EU Emissions Trading System alone accounts for the overwhelming majority of that figure, valued at around €770 billion, and it has generated over €175 billion since 2013, ploughed directly into renewables, energy efficiency, and low-carbon innovation.  EU compliance permits closed 2025 at roughly €82.85 per tonne, up 21.5% year-on-year.

The voluntary market, by contrast, was valued at approximately $2 billion to $2.5 billion in 2023, and even its most optimistic growth projections put it at $100 billion to $250 billion by 2030, still a fraction of where compliance markets already sit today.  The voluntary market is not a smaller version of the same thing.  It is roughly 0.15% the size of the compliance market, running on self-certification instead of government enforcement, which is precisely why an investigation could find, as The Guardian, Die Zeit, and SourceMaterial did in January 2023, that over 90% of Verra’s rainforest offset credits were likely phantom credits representing no genuine reduction at all, with the underlying deforestation threat overstated by roughly 400% on average according to a Cambridge University study.  Disney, Shell, Gucci, BHP, and Salesforce all bought into that fiction.  A market a few billion dollars in size, built on marketing department discretion, will always be more vulnerable to exactly this kind of collapse than a trillion-dollar market operating under statutory cap enforcement. 

Consider What This Money is Actually Supposed to Fund, because the Shortfall is Obscene

The Loss and Damage Fund, agreed at COP27 and operationalised at COP28 in 2023, exists to compensate developing nations for climate harm they did not cause.  Estimates of what developing countries actually need range from $215 billion to $387 billion annually this decade, with some analyses, including from the Loss and Damage Collaboration, putting current-year losses already above $400 billion annually, projected to rise to $580 billion by 2030 and between $1.1 trillion and $1.7 trillion by 2050.  The initial pledges at COP28 totalled roughly $700 million.  That is not a rounding error against $400 billion.  That is 0.1% to 0.2% of one year’s actual need, pledged as though it were a permanent solution.  Pledges and competing national interests were never going to close a gap of this magnitude, and four years on from COP28 nothing about that arithmetic has improved.

The GDP Numbers Underneath All of This Should Terrify Anyone Treating Climate Finance as Optional

The Swiss Re Institute’s stress test across 48 economies, representing 90% of global GDP, found that under a severe scenario of 3.2°C warming, the global economy could lose up to 18% of GDP by 2050 compared to a world without climate change.  Even under a moderate 2°C scenario, the loss sits at 11%, translating to roughly $23 trillion in reduced annual global output.  China stands to lose close to 24% of its GDP in the severe scenario.  ASEAN markets specifically are projected to lose about 37% of GDP by 2048 under the most extreme case, with Indonesia, Malaysia, the Philippines, Singapore, and Thailand collectively losing economic output exceeding seven times their combined 2019 GDP by 2050.  This is not a distant abstraction for the region.  It is the single largest economic risk most ASEAN economies will face this century, and it dwarfs, by orders of magnitude, the entire current size of the voluntary carbon market that keeps absorbing corporate climate budgets to negligible effect.

Why a Secondary Market Matters Strategically, Not Just Financially

A trillion-dollar compliance market with a liquid, fungible secondary layer does something a $700 million pledge round can never do: it attracts institutional capital at the scale the GDP numbers demand, because pension funds, sovereign wealth funds, and insurers will only deploy serious money into an asset class with price discovery, ratings, and enforceable standards behind it.  Currently, compliance carbon credits are not fungible across markets, which strangles exactly the kind of liquidity that would let capital move efficiently toward the highest-integrity mitigation projects.  Fixing that requires several things done in parallel: quality standards and a clear regulatory framework defining which credits qualify, verified against actual emissions reductions rather than marketing claims; rated carbon credits as the mechanism that finally lets institutional risk committees treat these instruments the way they already treat rated corporate debt; and a single, liquid trading infrastructure that makes credits genuinely tradeable rather than trapped inside jurisdiction-specific silos.

Regulatory recognition is the final and hardest step, running through partnerships with sovereign wealth funds on the basis that this infrastructure constitutes strategic national assets, and through recognition from central banks willing to treat high-integrity carbon credits as rated instruments rather than reputational accessories.  Achieve that, and carbon credits sit one step from full financial instrument status, tradeable and collateralisable the way investment-grade debt already is. 

A $400 billion annual funding gap and an 18% GDP loss scenario cannot be financed by phantom credits, self-certified rainforest projects, and corporate goodwill campaigns.  They require a trillion-dollar compliance market with real liquidity, real ratings, and real enforcement, scaled to match the size of the problem it claims to solve.  Climate mitigation has to become self-funding through a genuine secondary market, because pledges have had every opportunity to close this gap, and the numbers prove, year after year, that they never will.

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Terence Nunis | Executive Chairman, Equinox Zenith & Red Sycamore | Author, The 1% Playbook: The Billionaire Cheat Code