The voluntary carbon market as a strategy to fight the climate crisis


BAM’s business is closely related to the development of the international environmental and timber sector, as well as to the establishment of governmental and inter-institutional policies aimed at fighting the global climate crisis. In this sense, we detail the analysis of the external dynamics that have been impacting the course of BAM’s business.

Climate change and the importance of developing nature-based solutions to fight the environmental crisis

“Climate change is real and human activities, primarily the release of polluting gases from the burning of fossil fuels (coal, oil and gas), is the main cause.” – Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).

This real emergency corresponds to all people in the world (ANCUR, 2021) and its perceptible effects increasingly affect a larger population, endangering the whole society and our resources. Today, 30% of the world’s population is exposed to deadly heat waves more than 20 days a year (PNUMA, 2021, Fact Sheet). According to data from the European Union, between the months of June and August 2023, we experienced the hottest summer in history, reaching a global average temperature of 16.77 degrees Celsius (62.19 Fahrenheit), according to Copernicus, 0.66 degrees Celsius above the average from 1990 to 2020, overcoming the previous record, set in August 2019, by almost 0.3 degrees Celsius (CNN, 2023); being a further sign of the climate urgency in which we live.

Nature can provide up to one-third of the emissions reductions we need by 2030 to mitigate the worst effects of climate change (The Nature Conservancy, 2023).

We are still a long way from achieving the goal of limiting global warming to well below 2, preferably 1.5°C, compared to pre-industrial levels agreed in Article 4 of the Paris Agreement and reducing Greenhouse Gas (GHG) emissions by 43% by 2030 and 60% by 2035 relative to 2019 levels (Pacto Mundial, 2023). To meet this objective, we must annually reduce global emissions by 7.6% between 2020 and 2030 (EGR, 2019).

Climate Summit: COP 28 and the beginning of the end of fossil fuels

“The scale of decarbonization needed by 2030 is insurmountable unless we work together urgently to bend the emissions curve.” – Børge Brende, President of the World Economic Forum in an open letter to world leaders at COP28″ (The Nature Conservacy, 2023).

It is estimated that by 2030 the cost of damages and losses due to climate change will reach 400 billion dollars (De Justicia, 2024). In line with this, one of the main agreements of the COP28 held in Dubai was to implement a “Loss and Damage Fund” managed by the World Bank for 4 years, where the richest countries, which in turn generate a greater environmental impact, committed to provide economic assistance to the countries that suffer the most from the effects of climate change, among which Peru is present. During 2024, the leaders will define the specific functions of this fund, such as the contribution of each of them, the payment, collection and established timeframe (The Nature Conservacy, 2023). Likewise, a hundred countries set the goal of tripling the production of renewable energies by 2030 (BBC, 2023).

Carbon market dynamism and global demand projection

After the growth of the voluntary carbon market (VCM) in 2022, the global macroeconomic situation, together with the methodological adjustments being made by the standards with a view to strengthening the market, led to a slowdown in market decision-making in 2023, generating an impact on the prices of certified emission reductions or Verified Carbon Units (VCUs) throughout the year.

However, a new wave of investment is now emerging in the carbon market, spurring the origination of more than a thousand new carbon reduction projects, from forest protection to carbon capture and storage, generating a growing flow of carbon credits that companies can use in their decarbonization efforts (MSCI, 2023).

An important study by Trove Research (2023) revealed that over $18 billion of investment capital has been raised in carbon credit funds in the last two and a half years. More than 80% of this funding is for nature-based projects, such as afforestation/reforestation (ARR), and reducing emissions from deforestation and forest degradation (REDD+). Also, the analysis revealed that, since 2020, more than 1,500 new carbon credit projects have been developed that could save up to 300 million tons of CO₂ annually (roughly the same as the UK’s annual emissions) representing an increase of around 160% in the registration rate compared to the 2012-2020 period (MSCI, 2023).

On the other hand, a study of the voluntary carbon market by Ecosystem Marketplace (2023) showed that companies that use significant amounts of carbon credits are decarbonizing on average twice as fast as companies that do not use carbon credits (MSCI, 2023), demonstrating that the market incentivizes a real reduction in these emissions.

“The voluntary carbon market has the potential to invest billions of dollars in climate solutions over the next decade.” (Everland, 2023) (Harvard Business Review, 2023).

An MSCI’s report “Using Carbon Credits to Meet Corporate Climate Targets” (2023) estimates that if companies are allowed to use carbon credits to cover 50% of their total emissions gap (Scope 1, 2 and 3), about 1,000 more companies would be setting ambitious climate targets representing about $10 trillion in market capital.

According to Morgan Stanley, despite the complexity of the carbon market, it is expected to multiply x 50 in a single decade, going from almost US$2 billion in 2022 to almost US$100 billion in 2030, and up to US$250 billion in 2050 (Harvard Business Review, 2023). These investments represent an optimistic future for the market and greater investment in projects that generate direct and indirect environmental and social benefits, specifically in the Amazon.

Despite the 2023 juncture, the carbon market proved remarkably resilient and there is data to back this up. One of the latest studies by MSCI Carbon Markets shows that in 2023 there was a 14% increase in the retirement of carbon credits from nature-based solutions compared to 2022, reaching up to 75 thousand tons of retirements. This figure represents a breakthrough in the market and good investment opportunities in high-impact, high-integrity projects to meet the required targets. In the last decade it has become clear that environmental, social and governance risks are financial risks (ESG and Financial Performance by MSCI, 2023) and we must take action.

High integrity and transparent projects

There is an increasing demand from buyers to acquire high-integrity and high-impact carbon credits, seeking to make their offsetting more transparent and traceable. Therefore, during 2023, existing integrity standards, specifically the Integrity Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Market Integrity Initiative (VCMI), were popularized and promoted. Aligning to their basic principles has become a demand, seeking to ensure that the market contributes efficiently to meeting the goals set out in the Paris Agreement. There is also a greater appreciation for projects that align with the United Nations Sustainable Development Goals (SDGs) in a tangible way.

Learn more about how BAM contributes to mitigate the effects of climate change and contribute to the sustainable development of our society here.

By: Valeria Drinot

My New Stories