What Influences the Price of Carbon Credits in the Voluntary Carbon Market?

The voluntary carbon market (VCM) plays a crucial role in global climate action, enabling businesses, individuals, and organisations to purchase carbon credits to offset their emissions. However, the price of carbon credits varies widely based on multiple factors. These factors can be grouped into three main categories: project-specific factors, regional influences, and alignment with Sustainable Development Goals(SDGs).

Understanding these elements helps both buyers and project developers make informed decisions about investing in high-quality carbon credits.

(For more information on how the VCM is governed, you can follow this link to the Integrity Council of the VCM:  https://icvcm.org/ )

1. Project-Specific Factors

The nature and quality of a carbon credit project have a direct impact on its market value. Here’s how:

a) Project Type

Carbon credits are generated from two main types of projects:

• Avoidance or Reduction Projects – Prevent emissions from being released (e.g., renewable energy, energy efficiency, deforestation prevention).
• Removal Projects – Actively remove carbon from the atmosphere (e.g., afforestation, direct air capture, biochar).

Removal credits generally command higher prices due to their permanence and alignment with long-term net-zero goals.

b) Additionality and Permanence

• Additionality: The project must prove that emissions reductions wouldn’t have occurred without carbon finance. The stronger the additionality, the higher the price.
• Permanence: Projects that offer long-term storage of carbon (e.g., afforestation with guaranteed land protection) are valued higher than those with reversible         impacts (e.g., avoided deforestation).

c) Certification and Verification

Projects certified by reputable standards such as Gold Standard™, Verra (VCS), American Carbon Registry (ACR), and Climate Action Reserve (CAR) receive a price premium. These standards ensure rigorous monitoring, reporting, and verification (MRV).

d) Co-Benefits and Impact

Beyond emissions reductions, projects with positive social, environmental, and economic impacts fetch higher prices. For example:

• Biodiversity conservation (e.g., protecting rainforests with endangered species).
• Community benefits (e.g., clean cooking initiatives improving health).
• Job creation and gender equality (e.g., training local communities in sustainable agriculture).

Projects aligned with multiple SDGs (discussed below) tend to command premium pricing.

2. Regional and Market Influences

The location of a carbon project and broader market conditions also impact pricing.

a) Regional Cost Differences

• Projects in developing countries may offer cheaper credits due to lower operational costs.
• However, projects in regions with stricter regulations or higher compliance standards may sell credits at a premium.

b) Regulatory Landscape

Even though the VCM is voluntary, regional policies influence pricing:

• Carbon pricing mechanisms (e.g., EU ETS, California Cap-and-Trade) can drive demand.
• Countries integrating voluntary credits into Nationally Determined Contributions (NDCs) under the Paris Agreement may see price fluctuations.

c) Supply and Demand Dynamics

• Surplus credits in the market can drive prices down.
• Increasing corporate commitments to net-zero (e.g., Microsoft, Amazon) have driven demand for high-quality credits, pushing prices up.

d) Market Transparency and Liquidity

• The availability of standardised pricing platforms (e.g., Xpansiv, AirCarbon Exchange) increases transparency and stability.
• Speculation and trading activity also affect short-term price volatility.

3. Alignment with Sustainable Development Goals (SDGs)

The United Nations Sustainable Development Goals (SDGs) are becoming a key factor in carbon pricing. Projects that contribute to multiple SDGs beyond climate mitigation tend to command higher prices.

Key SDGs Influencing Carbon Credit Prices:

1. SDG         13 – Climate Action 
   • The core goal of carbon credit projects is to reduce greenhouse gas emissions. The higher the reduction potential, the greater the credit’s value.
 
2. SDG         15 – Life on Land
   • Forest conservation projects protecting biodiversity-rich areas receive higher valuation due to ecological benefits.
 
3. SDG         6 – Clean Water and Sanitation 
   • Projects improving water access and reducing water pollution can attract sustainability-focused buyers.
 
4. SDG         7 – Affordable and Clean Energy 
   • Renewable energy projects (solar, wind, hydro) generate carbon credits but often at lower prices due to high supply.
 
5. SDG         8 – Decent Work and Economic Growth 
   • Community-based carbon projects creating jobs, especially in developing regions, can achieve premium pricing.
 
6. SDG         3 – Good Health and Well-being 
   • Clean cooking and air pollution reduction projects are valued for their human health benefits.

Why SDG-Aligned Credits Command Higher Prices?

• Attract ESG-focused investors seeking climate and social impact.
• Differentiate projects in a competitive carbon market.
• Meet corporate sustainability reporting requirements (e.g., Science-Based Targets initiative)

Conclusion: The Evolving Landscape of Carbon Credit Pricing

The price of carbon credits in the voluntary market is determined by a mix of project quality, location, and SDG contributions.

• High-quality, removal-based, additional, and certified projects earn premium pricing.
• Projects with strong co-benefits and SDG alignment attract higher-value buyers.
• Market trends, corporate demand, and regulatory changes continue to shape prices.

As companies and investors prioritise net-zero and sustainability goals, demand for premium carbon credits is set to rise — making high-integrity, SDG-driven projects the future of the voluntary carbon market.

FarmN's methodology for low emission nitrogen based fertilisers promises to deliver. If you are planning a low emission fertiliser project or if you have any questions, please contact FarmN.

‍