Navigating Voluntary Carbon Markets: The need for trusted data and analytics

Our latest insight explores the role of Voluntary Carbon Markets (VCMs) in the transition to a net zero future, and unpacks the data and analytics that market participants need to navigate the VCM space effectively.

• VCMs offer investors and corporates the opportunity to accelerate their commitment to a net zero future.  
• The current market is fragmented and complex, with a lack of access to project and pricing information.
  
• As the VCM continues to grow and develop, trusted data – along with value-added analytics –will provide material support for market participants as they seek to navigate VCMs with greater ease and efficiency.
  

Voluntary Carbon Markets (VCM) continue to grow rapidly, offering investors and corporates the opportunity to accelerate and demonstrate their commitment to a net zero future.  

The VCM is used by companies to offset residual emissions while they implement decarbonisation strategies, through the purchase and retirement of carbon credits. These credits represent verified amounts of greenhouse gases avoided or removed from the atmosphere expressed in tonnes of CO2 equivalent global warming impact. Carbon credits have been used since the creation in 2006 of the UN’s Clean Development Mechanism, but recently, the use of credits on a voluntary basis has grown significantly: in 2023, approximately 164 million tons of CO2 equivalent were offset by carbon credits, over triple the volume in 2017. 

This increasing demand for carbon credits highlights the pressing need for a, scalable, transparent, VCM that delivers credits with consistently high integrity in terms of carbon accounting, but challenges persist. 

The current market is fragmented and complex; a lack of access to project and pricing information means that it is difficult for buyers to determine whether they are paying a fair price, and for suppliers to manage the risks associated with financing and implementing carbon-reduction projects without knowing the eventual price of the carbon credits they will generate.

LSEG is trusted provider of market infrastructure and has launched a growing suite of products to support integrity and scaling of this important but yet nascent market.

To function effectively, VCMs need the right data. For example, access to extensive registry data from the markets most widely used standards bodies can help market participants to unpack supply and demand dynamics more easily.

Understanding supply-side dynamics by looking at data such as the number of current and future projects by type of activity and location, and analysing trends in the volume of carbon credits issued and retired, can help stakeholders to answer a range of questions, including:

• Which project types exhibit an increase in supply? 
• Does this differ by geography? Credits from different geographies may have very different pricing, which means that finding the ones where supply is increased compared to demand mat reduce future prices. 
• What is the balance of overall available credits vs the rate at which they are retired? If too many are retired too quickly this may cause upward price pressure. If retirements slow, this may be a sign of reduced increasing risk attributes, such as political risk associated with certain jurisdictions, or concerns around accounting methodologies.

Similarly, understanding the dynamics of buyer activity in the VCM space empowers stakeholders to build a holistic picture of demand trends and drivers, and to answer questions such as: 

• Are certain types of credits only bought by a handful of companies? 
• Are credits bought in a consistent way, quarter over quarter, or are there significant seasonal differences? 
• Are there consistent patterns of long-term demand from the top buyers? 
• What are the major industries that buy VCM credits and does this vary by geography and over time?

The importance of robust, trusted data is clear, but to add real value, this data also needs to be:

Normalised and available on a timely basis:

To facilitate the use of data and make it accessible in a timely manner, it may be necessary to leverage AI to automatically normalise incoming data. Automation can help to deliver high-quality data at high frequency.

Classified:  

Classification is crucial when it comes to understanding the potential price and quality of a credit, since prices can vary significantly based on project type, methodology and geography. A robust solution should be able to assign consistent project classification – such as project type, reduction/removal classification, geography, and more.

AI-enabled for deeper insights: 

Deeper insights are invaluable, as they can enable market participants to spot trends in buyer behaviour and in the dynamics of demand.

To meet market needs, LSEG has launched a new data set for VCMs. Available on our Workspace platform, this data set features advanced AI-enabled functionality and captures VCM project and credits data from the four main registries – Verra, Gold Standard, Climate Action Reserve (CAR) and American Carbon Registry (ACR):

• 8.8k+ projects and 1.6bn+ credits
• Normalised data, updated daily 
• High quality, granular classifications, regularly reviewed by our trusted analysts
• CORSIA classification on credit level
• Article 6 information from Verra  
• Sustainable development goals (SDG) information from Gold Standard, ACR and CAR
• Advanced analytics to enable deeper insights

As the VCM continues to grow and develop, trusted data – along with value-added analytics –will provide material support for market participants as they seek to navigate VCMs with greater ease and efficiency.

LSEG’s data tools for the VCM complement our carbon market research, also available via Workspace, which covers VCM trends along with all the main compliance markets, that are increasingly examining the potential for inclusion of carbon credits – and in the case of the international aviation sector, using only carbon credits. Our data also enhances the ability of investors to undertake due diligence on funds and companies with the London Stock Exchange’s VCM designation that allow investors to hold equity shares that may yield dividends of carbon credits. 

The recent exponential growth evident in the voluntary market for carbon credits underscores the pressing need for such data as the foundation for an optimised space that can help stakeholders move forward with their net zero initiatives.  

-ends-

1. A blueprint for scaling voluntary carbon markets to meet the climate challenge, Jan 2021 https://www.mckinsey.com/capabilities/sustainability/our-insights/a-blueprint-for-scaling-voluntary-carbon-markets-to-meet-the-climate-challenge#/

2. Buyer information available directly from public registries and has been normalized between sources. However, there is insufficient information to assign legal entities. This information does not constitute legal entity assignment but is purely indicative.