Voluntary Carbon Markets Found to Be Over 10 Times Less Efficient Than Mainstream Markets, WFE Research Reveals

 

PRESS RELEASE

Voluntary Carbon Markets Found to Be Over 10 Times Less Efficient Than Mainstream Markets, WFE Research Reveals

London, 5th March 2025 - The World Federation of Exchanges (The WFE), the global industry association for exchanges and CCPs, has published new research today, the first study examining the dynamics of the primary markets in the Voluntary Carbon Market (VCM). 

The WFE Research paper analyses a comprehensive dataset of carbon offset projects with vintage years from 1996 until 31 December 2024 across the four major voluntary registries. The paper, titled “The dynamics of global voluntary carbon markets: An empirical analysis of the carbon credits lifecycle”, authored by Dr Ying Liu and Dr Pedro Gurrola-Pérez, finds:

Carbon credit issuance

• On average it takes 2.5 years from the year when the CO2 emission reduction or removal took place (known as the vintage year) to issue a carbon credit, compared, for example, to the 8-12 weeks it typically takes to issue a green bond.
• Average issuance time is decreasing, but it still exceeds 2010 levels, reflecting the market’s struggle to adapt to increased supply. 
• This lag varies across project scope and registries. Carbon credit issuance for chemical process projects have the fastest issuance time, while issuance for transport projects takes the longest. 

Carbon Credit retirement

• On average, the duration from credit vintage year to retirement (the point at which the holder of the credit claims the offset of carbon credits against its own carbon emissions) is 4.4 years.
• Retirement age is characterised by an uptrend from 2015 to 2021, implying that investors were purchasing older credits (or credits with an earlier vintage year) during this period. This reflects both changes in investor preference, and the longer issuance time during the period, which made credits older by the time they were ready to be traded.
• Household & Community projects exhibit the shortest retirement age at 3 years, and Carbon Capture & Storage projects take the longest at 9 years.

Market participants

• Proportional demand for credits from large end-users, particularly from the top ten retirement beneficiaries, has declined by roughly 27 percentage points since 2010. This shift indicates a more diversified investor base with increased participation from a broader range of market participants.
• Over 54% of retirements are of sizes smaller than 10 tCO2e, with a mean quantity of retired credits of 2,730 tCO2e, suggesting a substantial participation from medium and small buyers of credits.

*All data as of 31st December 2024.

Nandini Sukumar, CEO of the World Federation of Exchanges, said, “The WFE’s research shows the key issues that need to be addressed if the global carbon market framework, as agreed at COP29, is to be successful. The results show that VCMs currently lack the resilience and efficiency that investors experience on established mainstream markets. Regulated exchanges, already operating successful markets, will play a significant role in improving the functioning of VCMs, bringing their experience of running regulated public markets over the centuries. There is work to do: increasing standardisation of the markets, providing an infrastructure that stimulates efficient price formation, improving the levels of transparency and ensuring investor protection is enshrined at the heart of the VCM model. At COP29, the world took an important step forward with the international carbon market, but it won’t live up to its promise if these issues aren’t addressed. WFE Members will lead the way.”

Dr Pedro Gurrola-Perez, Head of Research at the World Federation of Exchanges, said, “The lag in carbon credit issuance is correlated with the number of new projects, which suggests that the increase in the lag is linked to the difficulties in scaling up the monitoring-verification cycle. In other words, the reduction in issuance time we observe in recent years may not be because processes are somehow improving, but more likely because supply has slowed down. The research also shows that since 2021 VCM growth has stalled. While retirement of credits is diversifying, the findings show a decrease in the proportion of participation from large investors, who are crucial to ensuring efficient secondary trading. To attract large investors, these markets need to become more automated and standardised.” 

The WFE will host a webinar to present the findings of the research on 10th March at 1pm GMT. The WFE will convene stakeholders to discuss how exchanges can promote and enable sustainability within the financial ecosystem in Singapore on June 5, at the industry’s annual ESG meeting.

Read the full paper here. To sign up for the webinar click here.

For more information, please contact:

Cally Billimore +44 7391 204 007

Communications Manager [email protected]

 

About the World Federation of Exchanges (WFE):

Established in 1961, the WFE is the global industry association for exchanges and clearing houses. Headquartered in London, it represents over 250 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of our members, 37% are in Asia-Pacific, 44% in EMEA and 19% in the Americas. WFE’s 87 member CCPs and clearing services collectively ensure that risk takers post some $1.3 trillion (equivalent) of resources to back their positions, in the form of initial margin and default fund requirements. WFE exchanges, together with other exchanges feeding into our database, are home to over 51,000 listed companies, and the market capitalisation of these entities is over $110 trillion; around $140 trillion (EOB) in trading annually passes through WFE members (at end 2024).

Through our Sustainability Working Group, which gathers the Sustainability leaders within the industry, we support our members in managing the key risks they and their issuers face in relation to sustainability and help them build on the opportunities presented by the move towards a more sustainable global economy. We convene the leaders annually at our ESG meeting to have an open dialogue on sustainability issues with the broader financial ecosystem. To help our members navigate the rapidly evolving landscape of sustainable finance and foster robust, high-integrity initiatives among the industry, the WFE also sets principles and guidance for exchanges . In 2023, the WFE published the industry-backed Green Equity Principles, which exchanges now use to guide their development of green equity designations and which provide a hallmark of quality for prospective investors.

The WFE is the definitive source for exchange-traded statistics and publishes over 350 market data indicators. Its free statistics database stretches back 49 years and provides information and insight into developments on global exchanges. The WFE’s database contains green data, aiming to facilitate a comparison with existing indicators. Our annual Sustainability Survey is the leading source of information on the industry’s sustainability priorities, challenges and key initiatives in relation to sustainability, and how these have evolved over the past decade.

The WFE works with standard-setters, policy makers, regulators and government organisations around the world to support and promote the development of fair, transparent, stable and efficient markets. The WFE shares regulatory authorities’ goals of ensuring the safety and soundness of the global financial system. The WFE is Chair of the International Organization of Securities Commissions Affiliate Members Consultative Committee Sustainability Task Force.

With extensive experience of developing and enforcing high standards of conduct, the WFE and its members support an orderly, secure, fair and transparent environment for investors; for companies that raise capital; and for all who deal with financial risk. We seek outcomes that maximise the common good, consumer confidence and economic growth. And we engage with policy makers and regulators in an open, collaborative way, reflecting the central, public role that exchanges and CCPs play in a globally integrated financial system.

Website: www.world-exchanges.org

Twitter: @TheWFE

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