The global carbon credit market is poised to grow dramatically. Companies with a commitment to climate action are driving demand for credits that are verified as being generated by projects that reduce greenhouse gas emissions. These projects range from reforestation to renewable energy. The credit market’s growth is facilitated by government and international efforts to set carbon-reduction goals, including the United Nations Framework Convention on Climate Change and the Paris Agreement to limit global warming. The market is also being spurred on by investors looking for opportunities to generate revenue from renewable energy investments and other low-carbon technologies.

A carbon credit exchange is a trading platform where market participants can trade credits from certified projects that reduce or offset greenhouse gases, such as afforestation, reforestation and sustainable agriculture. Governments and private companies implementing carbon pricing systems, such as cap and trade programs and carbon taxes, create a demand for credits and a need for trading platforms to facilitate the process.

While the existing compliance carbon markets in places like Europe, California and the UK allow for trade in emissions allowances – which represent the legal permission to emit greenhouse gases – newer, non-regulated markets are springing up around the world. Some of these include the voluntary market, which operates largely unchecked by regulators and is backed by a handful of respected standards organizations that verify carbon offsets.

Others are regulated and are intended to encourage businesses to accelerate their decarbonization by putting a price on carbon. Such regulated markets are often called “cap-and-trade” systems, and they are generally established by a country’s regulator under the authority of an international accord such as the Kyoto Protocol or the UN’s Article 6.

In addition to regulated market segments, a few countries have created their own exchanges to enable companies in their home markets to buy and sell carbon credits – so-called voluntary carbon markets. The table below showcases the top five leading countries, with Korea and the United Kingdom expected to lead the sector by 2034.

The United States is the third-leading market by revenue, driven by its growing focus on environmental protection and climate action. The US has a number of carbon emission reduction policies in place, including a renewable portfolio standard and carbon tax. In addition to a cap and trade system, the country has developed other pricing mechanisms, including those that target other greenhouse gases besides carbon dioxide.

Several experts noted the potential for Latin America to become a leader in carbon markets as it is highly suited for the creation of such exchanges due to its adoption of emissions-reduction policies at both the national and subnational level, government incentives promoting low-carbon technologies, and abundance of natural resources. In particular, the regional market could benefit from the creation of a carbon credit platform that can support biodiversity projects, such as those that address land degradation and ecosystem services. However, the development of such a platform may be hindered by challenges ranging from lack of investment capital to technical hurdles such as establishing a credible verification mechanism for these credits, according to experts.