Following multiple scientific studies that have revealed that carbon offsets are not as reliable as once thought, the market value of carbon offsets has dropped by around 61% when compared to its near-peak value in 2022, a new report has found.

In early 2023, a major investigative report by The Guardian, Die Zeit and SourceMaterial found that the vast majority of forest carbon offset programs are actually “phantom credits” that don’t help remove any emissions from the atmosphere. A 2022 study that analyzed forest-based carbon offsets in California for a decade found no climate benefits from the offset programs in that time period. Yet another study, published in March 2023, found that many carbon offsetting programs weren’t using scientific best practices to calculate carbon credits, leading to over-estimates of the benefits of these programs.

Now, a report by the nonprofit Ecosystem Marketplace found that the voluntary carbon market (VCM) value has declined 61%, from $1.9 billion in 2022 to around $723 million in 2023. The carbon offset market value had peaked around 2021, when the value reached over $2 billion.

Since the peak, the value has decreased by about 56% year-over-year, Ecosystem Marketplace found.

Experts noted that to make carbon offsetting work, there will need to be more reliability and action from the carbon credit programs.

“If the VCM hopes to increase its mitigation potential and the value it provides to ecosystems and communities, especially those hosting [The Nature Conservancy] projects, it is imperative that the credit supply shows its integrity by shifting towards methodologies that use the best available science and social safeguards,” Maximiliano Bernal Temores, carbon markets assistant, Impact Finance & Markets at The Nature Conservancy, said in a press release.

“Crediting standards and project developers must incorporate best-science practices like dynamic baselines and remote sensing to ensure the VCM, especially nature-based credits, meets buyer expectations,” Temores added.

The once most popular type of credit, REDD+, had the biggest losses in 2023. The REDD+ stands for “reducing emissions from deforestation and forest degradation in developing countries” and is based on a United Nations framework. 

But in 2023, researchers discovered that several REDD+ carbon credit projects in Peru, Colombia, Democratic Republic of Congo, Tanzania, Zambia and Cambodia did little to curb deforestation, and these projects had a much smaller impact on emissions reductions than they claimed, Forests News reported.

“The media scrutiny revealing that many projects issuing Redd+ credits to the voluntary carbon market have sold more credits than justified is important,” said Julia Jones, a professor at Bangor University and a co-author in one of the studies cited by the joint carbon credit investigation by The Guardian, Die Zeit and SourceMaterial. “However, I am deeply concerned that some of the recent coverage of the issue gives the impression that the very idea of tackling climate change by slowing tropical deforestation is a scam — this is not true and the idea could harm forests.”

The investigations on carbon credits and the recent report revealing the downfall of their market value highlight a need for change in the industry to help raise money for truly beneficial projects.

“Dramatically more finance is urgently needed to stop the ongoing loss of forests and the vital services they provide — a reformed voluntary carbon market could play a key role in providing that finance,” Jones told The Guardian.

This week, the Biden administration announced support for reforms to carbon credits, promoting “High-Integrity Voluntary Carbon Markets” and noting that projects must “represent real decarbonization” and avoid doing environmental harm.

However, it will also be critical for the world to take action to reduce emissions outside of relying on carbon credits, which critics have warned could be used by the wealthy to continue polluting. 

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