Is 2025 the year carbon credits gain traction?

Climate Voices

Is 2025 the year carbon credits gain traction?

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After years of premature optimism, fragmentation and greenwashing, Wendy Chen argues that carbon market participants are getting their act together. So what’s next?

“Once again, they buy up our land and profit off our people…in the name of carbon credits.”

This cutting remark from an activist friend over a holiday lunch in South Africa underscores a skepticism that has long surrounded carbon markets. Many local communities see carbon credits as a modern iteration of exploitation, echoing a history of colonialism disguised by environmentalist pretexts. 

Proponents, however, argue that carbon markets, if designed equitably, could transfer much-needed capital to regions most affected by climate change. Indeed, some have believed that in the face of public and private US funding cuts, potential capital flows from carbon markets have become even more important. But a critical challenge looms: will there ever be sufficient demand to establish a free market mechanism to scale these benefits?

In recent years, the voluntary carbon market has struggled with a credibility crisis, fueled by allegations of greenwashing and weak standards. According to a recent Climate Impact Partners report, 57% of Fortune 500 companies still do not say if they will use carbon credits to meet their carbon neutral targets, or simply not set a target at all. Adding to the uncertainty, the recent withdrawal of major U.S. banks from the Net Zero Banking Alliance has further undermined confidence in the market’s ability to deliver meaningful climate impact. 

However, with stronger governance, greater transparency, and reforms, those who believe in the potential value of carbon markets believe they see signs of a rebound: new policy incentives, rising tech investments, and the growing role of small and medium-sized enterprises (SMEs).

With stronger governance, greater transparency, and reforms, those who believe in the potential value of carbon markets believe they see signs of a rebound.

Global policy incentives are driving demand – despite the US

Policy incentives are pivotal in fostering demand for carbon credits. Many businesses cite regulatory ambiguity as a barrier. Some jurisdictions are looking to address this.

  • Singapore: As a regional leader, Singapore has implemented policies to bolster carbon markets. The Temasek-backed GenZero recently invested $32 million in BeZero, a carbon ratings agency, to validate the integrity of carbon projects so buyers of credits can have more certainty they will not be subject to a negative exposure. The country has also signed agreements with 16 nations across Asia, Africa, and Latin America to develop carbon market projects under Article 6 of the Paris Agreement, which will likely provide clearer guidelines and enhanced credibility that could drive demand from businesses seeking trusted ways to meet their sustainability targets. Singapore’s expanded carbon tax also allows businesses to offset up to 5% of taxable emissions using voluntary credits, creating direct demand.
  • Asia’s expanding markets beyond Singapore: China operates the world’s largest emissions trading system. Launched in 2021, it covers the power sector responsible for around 40% of the country’s emissions. While it does not yet require companies across all sectors to purchase carbon credits, the system lays the foundation for future expansion and increased demand, including the announced plan to cover aluminum, steel and cement sectors in 2025. Meanwhile, Japan, India, and ASEAN countries like Malaysia, Thailand, Vietnam, and Indonesia have launched or are developing exchanges. The Asia Society estimates Asia’s markets will cover 22% of global emissions by 2026. 
  • U.S. State-Level Leadership: Despite recent federal shifts in policy, states like California and Washington are expected to continue to fuel demand for credits. California’s Cap-and-Trade Program, one of the world’s largest compliance markets, requires industries like manufacturing and transportation to purchase credits for excess emissions beyond their allocated cap. Washington State’s new Cap-and-Invest law follows this example. 

Policy-driven frameworks in these regions showcase how well-designed mechanisms can improve trust, increase demand, and set a model for broader adoption.

Tech sector demand is growing

The tech industry, with its data centers consuming vastly more energy, is expected to drive demand for innovative solutions, including carbon markets — especially given that many have not publicly said they will walk away from their voluntary climate commitments. For example:

Driving meaningful impact, however, also requires improving trust and transparency. Salesforce is addressing this challenge by backing Sylvera, a leading carbon rating agency. “Markets are essential for matching supply and demand efficiently, but we need to deploy capital where it drives real solutions,” Tim Christophersen, VP of Climate Action at Salesforce, told me. “Working with our partners at Salesforce Ventures, we invest in companies like Sylvera, leveraging technology including AI to improve transparency and impact.”

These combined efforts — investing in cutting-edge technologies and improving accountability through rating agencies — show how tech companies are shaping the future of carbon markets. One entrepreneur who spoke on condition of anonymity expressed optimism about billionaire Mike Bloomberg’s recent commitment to cover the U.S. climate membership fee in the UNFCCC following the Trump Administration’s withdrawal, saying, “This shows that just because Trump pulled out of the Paris Agreement, other Americans [including businesses] care about climate change and will do what they can to comply. Carbon markets will continue to grow and become more regulated, which is good.”

SMEs: Catalysts for supply and demand

Small and medium-sized enterprises (SMEs) are also driving opportunities in carbon markets, despite the mixed actions from big U.S. corporations in the current political climate. In Europe, upcoming ESG reporting requirements are encouraging SMEs — including those in the U.S. that sell into Europe — to address their emissions proactively. Many will likely purchase carbon credits to account for emissions beyond their control, such as energy sourced from non-renewable grids. In these instances, an SME may have limited options for alternative energy sourcing and be forced to rely on the main grid, which might be  powered in part or entirely by fossil fuels. So carbon credits might offer the only way for them to meet carbon commitments and react to pressure on their carbon footprint.

SMEs are also exploring carbon markets as potential suppliers. Agricultural and food production SMEs, for example, are considering selling credits generated through sustainable practices. Policy shifts in states like California provide both certainty and frameworks for these businesses to align with carbon market opportunities. 

Progress might be incremental, but the rewards — for the climate and our collective future — make the effort indispensable.

“SMEs are often overlooked in the climate conversation, but they are uniquely positioned to lead the way in ESG readiness,” Devry Boughner Vorwerk, CEO of Devry BV Sustainable Strategies, told me. “We’re helping SMEs with risk assessment, data strategies. While there isn’t enough faith in the current carbon markets, we are identifying revenue opportunities within new policies and regulations, especially in states such as California. By laying the groundwork now, SMEs can navigate risks while capitalizing on these emerging markets.”

To unlock this potential, systemic improvements in verification and standardization — such as unified guidelines, automated tools, and policy alignment — are essential, ensuring SMEs can participate effectively in carbon markets.

A cautious path forward

Carbon markets in 2025 are at a crossroads. Policy incentives, tech sector engagement, and SME participation offer reasons for optimism, but fragmentation and greenwashing persist. So what’s next?

For guidance, it’s worth considering the evolution of the stock market. From Amsterdam’s first stock exchange in 1602 where only shares of the Dutch East India Company were traded, to the establishment of the New York Stock Exchange in 1792, it took nearly two centuries to build a functional, trusted system. Carbon markets, by comparison, are still in their infancy – and those of us working with them hope that it won’t take us another two centuries for this market to mature. 

Hope for robust and viable carbon markets lies in addressing challenges head on so that we can build carbon markets that deliver real, lasting impact. Progress might be incremental, but the rewards — for the climate and our collective future — make the effort indispensable.

Written by

Wendy Chen

Wendy Chen is a financial markets expert and Wall Street veteran, and the Co-Founder and CEO of Yun Impact, a climate finance advisory firm. Based in New York, Chen is also Head of Capital Markets, Americas at Fosun International (HKSE: 656), where she advises Fosun’s portfolio companies, with a total of $100 billion+ in consolidated assets, on their debt, equity and structured financing transactions with venture, private equity and strategic financing partners in the U.S. Before joining Fosun, Chen was Vice President of Finance at Pagaya, an AI-driven financial technology company, where she was part of the team that executed an $8.5 billion Nasdaq IPO via a SPAC merger. At Barclays Capital, she advised CEOs on IPOs and public company strategies. Chen also serves as Board Member and Treasurer at Food Education Fund, supporting culinary education for NYC’s youth. Chen graduated summa cum laude from Colby College.