By Dauda Sulaimon Abiola
Like our yearly ritual to examine what happened and what will happen in carbon finance globally, this year’s thesis and projections focus on a market that has finally been forced to choose between cheap promises and verified impact. If 2025 was the year of reckoning, 2026 is set to be the year of proof.
Last year, I wrote about the push for standardisation, the promise of Article 6, and the emergence of Africa as a focal point for carbon investment. Much of that came to pass, though not without turbulence. The voluntary carbon market contracted to its lowest transaction volume in six years, yet paradoxically emerged stronger, more disciplined, and better positioned for scale. Indeed, transaction volumes fell by 25 percent in 2024 but credit retirements held steady, suggesting that underlying demand remains resilient even as the market sheds its weakest actors.
This paradox of shrinking volume and rising integrity defines the current moment. The era of indiscriminate offsetting is over, and in its place, a bifurcated market has emerged where quality commands premium prices and legacy credits trade for less than a dollar.
The Great Bifurcation: A Two-Tier Market Emerges
The most striking development in carbon finance over the past year has been the dramatic divergence in credit pricing. High-rated credits now average $14.80 per tonne, while low-quality credits fetch just $3.50. At the extremes, durable carbon removal credits from biochar and enhanced weathering projects command $187 to $349 per tonne, but generic avoidance credits on exchanges fell below $1 in early 2025.. Put simply, the market has split into two distinct ecosystems operating under the same name.
The Integrity Council for the Voluntary Carbon Market drove much of this shift by rejecting all legacy renewable energy methodologies, thereby raising the bar for what constitutes a credible carbon credit. As a result, the ICVCM’s Core Carbon Principles have become the de facto quality benchmark and credits carrying the CCP label now trade at multiples of uncertified alternatives. Buyers have responded accordingly, with over 20 million nature-based credits secured through offtake agreements in 2024. This represents 10 percent of all retirements and marks a decisive shift from short-term offsetting to future supply planning.
Perhaps most telling is the vintage premium. Credits issued within the last five years now command a 217 percent premium over older vintages, compared to just 53 percent the year before. Clearly, buyers are seeking recency, transparency, and verified additionality with unprecedented intensity.
Moreover, the removal versus avoidance price gap has widened considerably. Credits representing emissions removals were 381 percent more expensive than emissions reduction credits in 2024, up from 245 percent in 2023. Consequently, removal credits from reforestation, biochar, and engineered solutions now occupy a premium tier that avoidance credits cannot reach regardless of verification quality.
For project developers, this translates to a clear mandate for quality over quantity. Those who invested in robust monitoring, reporting, and verification systems are now capturing the value that others forfeited, while those who relied on outdated methodologies and minimal documentation are discovering that their credits have become nearly worthless.
Article 6: From Rulebook to Reality
For years, Article 6 of the Paris Agreement existed as an elegant theory awaiting practical application. That wait is now over. At COP29 in Baku, countries adopted the remaining technical guidance needed to operationalise the Paris Agreement’s carbon market provisions. The Paris Agreement Crediting Mechanism now has a fully operational rulebook and the first international carbon credit transactions under Article 6.4 are expected imminently.
According to UNFCCC estimates, the mechanism could reduce the costs of implementing Nationally Determined Contributions by $250 billion globally. For developing nations with significant mitigation potential, this represents an unprecedented opportunity to attract climate finance while advancing national development objectives.
In practice, the mechanism operates through two primary channels. Article 6.2 enables bilateral exchanges of Internationally Transferred Mitigation Outcomes between countries, allowing direct government-to-government cooperation on emissions reductions. Meanwhile, Article 6.4 establishes a centralised crediting mechanism for projects that meet stringent quality criteria, with host countries required to apply corresponding adjustments to prevent double-counting.
Importantly, the dual-layer registry system approved at COP29 represents a significant technical advance. Interconnected national registries maintained by each participating country will link to a central UN registry, creating transparency across the entire system. This architecture addresses longstanding concerns about double-counting that plagued the Clean Development Mechanism under the Kyoto Protocol, where one assessment found that only two percent of projects were additional and accurately estimated greenhouse gas reductions.
What makes Article 6 particularly significant is its potential to bridge voluntary and compliance markets. Credits issued under the mechanism must meet rigorous standards that exceed most voluntary market requirements, thereby creating a premium tier that could attract institutional investors previously wary of reputational risks. That said, whether credits from voluntary carbon markets should be accepted under Article 6 remains divisive, with some stakeholders seeking flexibility to encourage private sector participation while others resist due to quality concerns.
With no formal Article 6 negotiations scheduled until 2028, the focus now shifts entirely to implementation. Countries that establish national carbon market frameworks, build registry infrastructure, and develop project pipelines will capture the greatest share of early investment flows.
CBAM: The Carbon Border Tax Goes Live
On 1 January 2026, the European Union’s Carbon Border Adjustment Mechanism entered its definitive phase, marking the first time a carbon price has been externalised beyond national borders. After a two-year transitional period focused on reporting, EU importers must now purchase CBAM certificates to cover the embedded emissions in goods from covered sectors, including cement, iron and steel, aluminium, fertilizers, electricity, and hydrogen. In effect, the mechanism represents a fundamental restructuring of global trade incentives around carbon.
CBAM certificate prices are directly linked to EU Emissions Trading System prices, currently hovering around €82 to €89 per tonne. For exporters in emissions-intensive sectors, the choice is now between decarbonising production or paying an escalating premium for EU market access. When fully phased in by 2034, the mechanism will capture more than 50 percent of emissions from ETS-covered sectors.
Notably, the October 2025 Omnibus simplification package introduced important adjustments. Importers with less than 50 tonnes of covered goods annually are now exempt, excluding 90 percent of importers but still capturing 99 percent of carbon emissions. This modification responds to concerns about administrative burden on small and medium enterprises while preserving the mechanism’s environmental effectiveness.
The ripple effects are already visible globally. For instance, the United Kingdom has announced goals to link its ETS with the EU system, narrowing the price spread between the two. Similarly, Canada, Australia, and several other jurisdictions are exploring comparable border carbon adjustments. According to OECD estimates, CBAM could generate €14.7 billion in revenue annually, while research suggests carbon leakage currently offsets domestic reduction efforts by roughly 13 percent in aluminium, cement, and steel.
Looking ahead, the first CBAM declaration and certificate surrender falls due in September 2027, covering all 2026 imports. Certificates must be purchased retroactively from February 2027, priced at the quarterly average EU ETS price for 2026. Companies that have not established emissions tracking across their supply chains therefore face a compressed timeline to achieve compliance.
The broader lesson of CBAM is that carbon pricing is becoming a condition of international trade. Companies and countries that build emissions tracking infrastructure now will be better positioned as border carbon adjustments proliferate across major economies.
Technology: The New Infrastructure of Trust
Carbon finance has historically suffered from a verification problem where claims of emissions reductions are only as credible as the systems that measure them. Fortunately, technology is now solving this challenge at scale.
Blockchain-based carbon markets have moved from conceptual pilots to mainstream adoption. Platforms like Carbonmark, Toucan, and KlimaDAO now power integrations with corporate ESG tools, enabling instant retirement and API-based automation. The emphasis on transparency and immutable records addresses longstanding concerns about double counting and fraudulent claims. For example, Wildlife Works has implemented blockchain-based tracking for its Kenya REDD+ project, improving auditability and attracting premium buyers from European markets.
At the same time, artificial intelligence is enhancing verification accuracy across project types. Remote sensing and satellite data are being paired with machine learning to estimate carbon sequestration in real time, representing a significant advance for nature-based solutions that previously relied on periodic manual audits. ClearBlue Markets’ Offset Price Discovery Tool, which uses machine learning to estimate spot prices across project types, has demonstrated 97 percent accuracy against historical data, thereby bringing compliance-market-style transparency to the fragmented voluntary market.
Furthermore, digital measurement, reporting, and verification tools are becoming prerequisites for project credibility. Carbon-financed cookstove projects, which have faced intense scrutiny over quantification accuracy, are increasingly adopting proprietary stove use meters and continuous monitoring systems. As a consequence, projects that invest in robust digital MRV systems will increasingly command price premiums, while those relying on outdated verification approaches will face persistent discounts.
Given these advances, the Climate Action Data Trust, a multi-registry organisation, is working to prevent double counting across different standards and jurisdictions. As carbon markets proliferate and overlap, such coordination mechanisms become essential infrastructure for maintaining system integrity.
Sector-Specific Dynamics
Energy-intensive industries like cement and steel, long considered hard to abate, are beginning to embrace carbon finance as a pivotal tool in their decarbonisation efforts. These sectors are increasingly leveraging innovations in carbon capture, utilization, and storage technologies, which are being integrated into carbon markets to create scalable pathways for emissions reduction.
Alongside these industrial developments, nature-based solutions continue to dominate credit issuance volumes, though with evolving composition. Projects centred on reforestation, soil carbon sequestration, and blue carbon ecosystems like mangroves and seagrasses are emerging as central pillars of carbon credit supply. These solutions provide co-benefits, including biodiversity preservation and community resilience, that increasingly command price premiums. However, challenges around additionality and permanence persist, driving a push for greater accountability and rigorous standards.
The clean cooking sector, for its part, has demonstrated particular resilience through the market’s quality transition. Cookstove projects deliver measurable health, environmental, and social co-benefits that align well with buyer preferences for credits with verified development impacts. Tellingly, the ICVCM’s approval of landfill gas methodologies triggered sharp increases in demand, with transaction volumes tripling and average prices rising 35 percent in the second half of 2024.
Meanwhile, carbon dioxide removal is attracting intense interest despite limited current supply. Durable removal methods, like direct air capture, enhanced weathering, and biochar, command the highest prices in the market but face significant scaling challenges. Cumulative purchases in the CDR category remain under 16 million tonnes globally, far below the scale that net-zero pathways require. Although specialized registries like Puro Earth and Isometric are scaling operations, the supply-demand imbalance will persist for years.
Regional Dynamics: Emerging Markets Take Centre Stage
Regions like Africa and Southeast Asia are becoming focal points for carbon finance, thanks to their abundant natural resources and growing alignment with global climate goals. Countries such as Kenya and Indonesia have refined their regulatory frameworks to attract investments in impactful offset projects, setting the pace for others to follow.
Kenya, in particular, has established itself as Africa’s carbon market leader through the comprehensive Climate Change (Carbon Markets) Regulations enacted in 2024. The framework establishes a national carbon registry, mandates community benefit-sharing through Community Development Agreements, and aligns with international standards. Building on this foundation, bilateral agreements with Switzerland and Sweden under Article 6.2 are now unlocking significant investment flows.
At a continental level, the Africa Carbon Markets Initiative has secured over $1 billion in demand-side commitments for African carbon credits by 2030. This includes $650 million in purchase intentions from Standard Chartered, Vertree, Nando’s, ETG, and the UAE Carbon Alliance, alongside $250 million in letters of intent from investors to develop high-integrity projects. Despite this progress, the continent holds immense untapped potential for nature-based climate solutions, currently capturing only 16 percent of the global carbon credits market.
In Asia, Singapore has established an International Carbon Credit framework that allows limited use of eligible credits with corresponding adjustment requirements and clear buyer guidance. The country is positioning itself as a hub for high-integrity carbon trading in the region, with ambitions to develop both compliance and voluntary market infrastructure.
Across the Atlantic, Latin American governments are promoting policies that encourage the generation and commercialization of voluntary carbon emission reductions and removals. Brazil, which hosted COP30 in Belém, is laying groundwork for engagement with Article 6.2 while launching initiatives like the Race to Belém fund with plans to issue $1.5 billion in new carbon credits to finance Amazon conservation.
Taken together, these emerging markets represent both critical pathways to global climate targets and significant opportunities to integrate local communities into sustainable development efforts through equitable benefit-sharing.
Nigeria’s Positioning
Nigeria made significant strides in carbon market development during 2025. In March, President Tinubu announced the finalisation of the Nigeria Carbon Market Activation Policy, introducing new market infrastructure including a national carbon registry, project eligibility rules aligned with Article 6, and incentives to scale private sector credit generation. The policy targets unlocking $2.5 billion in high-integrity carbon credit investments by 2030 with potential job creation of 2.3 million.
Building on this momentum, the federal cabinet approved the full National Carbon Market Framework in October 2025 ahead of COP30, designed to integrate Nigeria into global carbon trading systems while ensuring compliance with UNFCCC standards. The National Council on Climate Change will serve as the central coordinating body for implementation.
On the international stage, Nigeria’s third Nationally Determined Contribution, submitted in September 2025, commits to reducing greenhouse gas emissions by 29 percent by 2030 and 32 percent by 2035 relative to 2018 levels. Additionally, the NDC targets 100 percent electricity access by 2030 with at least 50 percent of power generation from renewables.
In terms of project activity, the country hosts 114 clean cookstove carbon projects, accounting for five percent of all global cookstove credit issuances. Reflecting this strength, Abatable’s VCM Investment Attractiveness Index ranks Nigeria as the seventh most attractive country globally for carbon project development. Most notably, the Greenplinth Africa initiative has signed a $1.5 billion agreement to distribute 80 million clean cookstoves financed entirely by carbon credits.
Beyond cookstoves, blue carbon opportunities in the Niger Delta are attracting significant investment. Nigeria’s mangrove forests span 10,500 square kilometres, making them the largest in Africa and third-largest globally. The Delta AZURE programme aims to become the world’s largest blue carbon project, with potential to sequester over five million tonnes of carbon annually. Similarly, First Climate’s Niger Delta Mangrove Restoration Project recently completed verification audits under Verra’s standards, advancing toward first credit issuance.
Finally, Cross River State’s REDD+ programme offers valuable lessons for future project development, demonstrating both the revenue potential and the critical importance of robust community benefit-sharing frameworks.
Challenges on the Horizon
For all the progress of the past year, significant obstacles remain. The voluntary carbon market’s 25 percent volume decline reflects real uncertainty among buyers navigating evolving standards and reputational risks. While the quality revolution is necessary, the transition has frozen capital that might otherwise fund mitigation projects in developing economies.
Compounding this challenge, double counting remains a technical hurdle despite Article 6’s corresponding adjustment requirements. The dual-layer registry system will help, but implementation varies across jurisdictions with different levels of institutional capacity.
At the same time, scaling carbon removals faces persistent supply constraints. Durable carbon dioxide removal methods remain expensive, while nature-based removals face questions about permanence and additionality. The price premiums that removal credits command reflect genuine scarcity rather than market inefficiency.
Equally concerning, greenwashing allegations continue to cast doubt on the integrity of certain projects, discouraging participation and investment. Despite progress on standards, 43 percent of 2024 retirements still came from low-rated projects. Strengthening transparency and accountability, therefore, remains essential to maintaining trust in the system.
For developing economies in particular, balancing voluntary participation in carbon markets with compliance requirements presents unique challenges. These nations often face resource constraints that make full engagement difficult, even as their natural assets make them essential to global mitigation pathways. Equitable solutions that consider these circumstances are critical to fostering meaningful participation.
What to Watch in 2026
Several specific developments will shape carbon finance trajectories this year.
In the first quarter, CBAM’s definitive phase will generate the first real data on compliance costs and market responses. The authorisation deadline for EU importers falls on 31 March and any disruptions to trade flows will attract significant attention. Concurrently, the first methodologies for Article 6.4 projects are expected, potentially unlocking a new tier of premium credits.
By mid-year, the EU is likely to extend CBAM scope to additional sectors, potentially including chemicals and plastics. At the same time, the CORSIA demand window of 161 million units between 2024 and 2026 will close, providing a test of the aviation sector’s appetite for international credits. Additionally, updates to Science Based Targets initiative guidance on corporate credit use will clarify how companies can credibly integrate offsetting into net-zero strategies.
In the second half, attention will turn to COP31 in Australia, which will provide the first comprehensive assessment of Article 6 implementation progress. Furthermore, the EU may announce details of its 2040 climate law, which could permit limited international credit purchases from 2036, representing a significant potential demand signal for high-quality credits from developing economies.
Throughout the year, market indicators worth tracking include the volume and pricing of CCP-labelled credits, the spread between removal and avoidance credits, retirement volumes from African projects, and the pace of national carbon registry launches across emerging markets.
Dauda Sulaimon Abiola, an ESG and sustainability analyst, writes from his one-bedroom apartment in Iseyin, Nigeria
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