Carbon credits could be a ‘net zero silver bullet’, but challenges remain

81% of investors and developers surveyed said carbon credits will have an increasingly “critical role” to play as corporate demand rises to meet net zero targets. The findings were even more striking for investors in funds over $1 billion, with 90% endorsing this view.

The survey, conducted by Pinsent Masons and Censuswide, canvassed more than 1,000 venture capital (VC) investment funds and developers engaged in low-carbon technologies over the past 12 months to capture their views on the direction of travel and challenges facing the carbon credits market.

Carbon credits are certificates generated by projects that help remove carbon from the atmosphere or prevent emissions from occurring altogether. The survey focused on investor and developer appetite for engineered credits that involve carbon dioxide removal (CDR) technologies, including direct air capture (DAC), waste to energy with carbon capture & storage (WECCS) and bioenergy with carbon capture & storage (BECCS), which can permanently remove carbon from the atmosphere and store it for extended periods.

These differ to other nature-based carbon credits, which are generated from nature-based solutions projects which either sequester carbon through natural carbon sinks or avoid carbon emissions occurring in the first place.

Carbon credits are an increasing draw for investors because they can create an additional revenue stream to support expensive decarbonisation projects. The survey revealed investor sentiment in engineered carbon credits was generally high across the board, with 79% of investors in funds under $100 million – in addition to the 90% of investors in funds over $1bn – agreeing that carbon credits would be fundamental to helping corporates achieve their net zero ambitions.

However, the responses from developers painted a much more mixed picture. Although 91% of early-stage companies agreed with the vast majority of investors, just 57% of Series E developers said they felt carbon credits would be a net zero silver bullet.

Although demand for carbon credits is expected to reach up to 100 million metric tons of CO₂ by 2030, the survey identified several critical barriers to investment – namely a lack of stable and predictable carbon pricing and standardised verification frameworks.

Stacey Collins, a specialist in low carbon technology projects at Pinsent Masons, said the carbon credits market is currently being held back by a lack of clarity and certainty, which was dampening investor and developer confidence in the market. “We ideally need some sort of global price stabilisation mechanism in place,” he said. “Many of the developers know they can create the projects that will generate carbon credits, but the issue is who's going to buy them. If you have the confidence that there's a strong market of buyers for the credits, and what price will be paid, that's a huge game changer.”

Global pricing standardisation is one factor, but market confidence will also hinge on the credibility of the verification process for carbon credits, he added. While engineered credits are generally regarded as easier to verify than nature-based credits, they still require complex monitoring right from capture through to transport and permanent storage.

Too often, Collins said this resulted in an “expensive and complex process to verify the end-to-end solution” that is putting off investors and particularly developers looking to rely on carbon credit revenue to bring forward capture projects.

This reticence was borne out in the survey data, where 54% of respondents said the verification process is too complex and costly. The same proportion said legal uncertainty is a significant risk factor for those looking to invest.

Some jurisdictions, like the UK, are attempting to get around this verification conundrum by preparing their own verification standards and committing to integrate verified carbon credits into their emissions trading schemes. In July 2025, the UK government said it would allow operators to buy carbon credits in UK-based projects on a one-for-one basis. “The idea behind this is to provide a more tradable platform and build the market,” said Collins. “The UK has said the integration into the UK ETS will happen from 2029, but it’s still a bit unclear, even now, exactly when that will be and the details of how it will work.”

Fiona Ross, a specialist in carbon credits at Pinsent Masons, said this ambiguity makes it challenging for developers trying to anticipate how the UK carbon credit market will evolve even in the next 12-18 months and how any offtake agreement will sit alongside the carbon credit verification regime and any government support. “If you want to develop a project based on carbon credits, it's quite hard to say exactly what the market is going to look like and when is it going to appear, even though there's huge demand for carbon credits as we've seen from our data,” said Ross.

What makes it more complicated still is buyers of these credits are often not based in the jurisdiction in which they are generated. “If you have a buyer in the US buying a credit that's generated and stored in the UK, for example, they are likely to also require it to be verified according to US standards,” added Ross.

Carbon credits are often generated, transported and stored in different jurisdictions. This creates a multitude of cross-border legal and regulatory challenges around standards, liability and emissions accounting. There is currently little alignment globally on any of this, which increases uncertainty and risk for both developers and investors. This is only exacerbated in jurisdictions, such as the US, which have demonstrated just how quickly changing political cycles can reverse climate-friendly policies and dampen investor sentiment.

Collins said guaranteed credit alignment at an international level would provide greater market confidence that carbon credits are genuine and avoid common pitfalls, such as inadvertent double counting. He believes governments and regulators have an important role to play in shifting the dial on this. This view was endorsed by the survey, where 81% of respondents indicated they felt government incentives were “essential” to boost confidence and accelerate investment in the carbon credit market.

There have been some positive signals that governments are serious about aligning compliance carbon markets. In late 2025, at COP30 in Belém, Brazil launched an Open Coalition on Compliance Carbon Markets aimed at harmonising standards and linking existing carbon credit trading systems to boost liquidity, predictability, and transparency in the sector.

The COP30 coalition was heralded as the first step towards helping countries and companies offset emissions under one global standard. The coalition was subsequently endorsed by 17 countries and the EU and is designed to complement existing international carbon pricing platforms, including the International Carbon Action Partnership (ICAP), the Global Carbon Pricing Challenge, the Carbon Pricing in the Americas initiative, and the Carbon Market Platform.

At the national level, there are a number of countries that are taking an assertive role in this market. In May, Singapore’s government confirmed it was committing $15m to the Global Green Growth Institute’s Carbon Transaction Facility, which aims to accelerate global greenhouse gas emission (GHG) reductions by scaling up carbon trading under Article 6 of the Paris Agreement. The move makes Singapore the first Asian country to contribute to the Carbon Transaction Facility, which is already supported by the UK, New Zealand, Norway and Sweden.

Government initiatives like these are positive for investor sentiment, but Ross said there is still more work to be done to manage the “patchwork quilt of risk positions” currently presented by the carbon credits market.

More data, she said, may be part of the solution: “For investors, insurers and funders, there are simply not enough projects in deployment to be able to get to a standardised position on how things should work that everybody can align with.”

Certainty – whether legal, regulatory or policy – and standardisation will be critical for the market’s scalability. “At the moment it's quite a fractured picture as the market doesn't have confidence that there are enough off-takers, or that there’s enough regulatory or policy certainty,” added Collins. “There are some big players, but it's quite a narrow market. There’s a lot of discussion about integrating carbon credits into emission trading schemes, which will generate a much bigger platform and bring in more buyers, but the reality is we don't know exactly how much of that is going to work in practice. We need some kind of standardisation as to how the risks associated with trading carbon credits are dealt with.”