From Quotas to Credits: The Evolution of a Global Carbon Market

Carbon markets emerged from the idea that putting a price on emissions would help reduce them. In the 2000s, under the Kyoto Protocol, the first emissions trading systems (ETS) were created. The most prominent, the EU ETS (European Union Emissions Trading System), launched in 2005, set a cap on emissions for high-emitting sectors (heavy industry, energy production, intra-European aviation), allowing companies to trade emission allowances.

This "cap-and-trade" model has since been replicated in other jurisdictions (UK, New Zealand, South Korea, China...), but remains focused on a limited number of sectors. It is a powerful yet partial tool, excluding agricultural emissions, land use, and the majority of service-sector companies.

In parallel, the voluntary carbon market developed as a complementary space. It enables non-regulated actors – companies, municipalities, individuals – to finance projects that reduce or sequester greenhouse gas emissions, often through nature-based solutions like reforestation, mangrove restoration, or regenerative agriculture.

Originally designed as an add-on mechanism for companies pursuing net-zero trajectories in line with the Science-Based Targets initiative (SBTi), the voluntary market is now undergoing a transformation. Its rise in quality, increased methodological oversight, and growing compatibility with regulatory frameworks make it a central tool in the global climate architecture. This article aims to explore the growing convergence between voluntary and regulatory markets.

1. From Corporate Offset Tool to Public Policy Instrument

The voluntary carbon market was initially created to meet a private-sector demand for climate responsibility. Many companies, eager to contribute to climate action beyond legal requirements, began offsetting their residual emissions through the purchase of carbon credits, particularly those aligned with SBTi standards.

However, this purely corporate logic is shifting. The voluntary market is entering a phase of advanced structuring. Funded projects are held to increasingly high standards: transparency, rigorous emission accounting, demonstrable social and environmental co-benefits. Leading certification standards like Verra, Gold Standard, and France’s Label Bas Carbone are strengthening their criteria to incorporate environmental, social, and governance integrity.

Simultaneously, buyers are no longer only looking for low-cost, high-volume credits, but for credibility and reputational assurance. This shift from quantity to real climate impact is transforming the ecosystem of the voluntary market. More importantly, it is preparing this market for broader recognition in public climate policies, as illustrated by the case of Singapore.

2. A Structural Convergence Between Markets

The rising quality of the voluntary carbon market coincides with the evolution of regulatory frameworks. The Paris Agreement, specifically Article 6, now provides a legal basis for integrating carbon credits into compliance systems. Article 6.2 allows for the bilateral transfer of emission reduction units (ITMOs) between countries, under strict environmental integrity rules. Article 6.4 establishes a centralized mechanism with approved methodologies and multilateral governance.

Sectoral mechanisms like CORSIA (for international aviation) already require airlines to offset excess emissions with credits that meet international standards, including Article 6 alignment. Though still in early stages, this system marks the first structural integration of voluntary credits into a global compliance regime.

More and more countries are also embedding carbon credits into their fiscal or climate policies. Singapore, for example, allows companies to offset part of their carbon tax (between 5% and 10%) using internationally recognized credits from Article 6-compliant projects. The first government-led tenders revealed prices between $19 and $41/tCO2e, averaging around $26-$29/t.

This movement is not isolated. The European Union is seriously considering the inclusion of "removal" credits – carbon capture via nature-based solutions or technologies like biochar and DAC – in its ETS reform scheduled for 2026. Countries like Mozambique, Gabon, and Djibouti have launched national registries backed by sectoral carbon taxes, with revenues reinvested in local climate projects.

3. Case Studies: Convergence in Practice

Singapore is a textbook case of this new model. The country gradually increased its carbon tax from $5 to $25/t in 2024, with a goal of $50/t by 2030. It implemented a partial offset mechanism using international credits compliant with Article 6, launched public tenders, supported certified registries, and positioned itself as a regional carbon hub in Asia.

In Africa, several states demonstrate that carbon taxation schemes can become powerful levers for financing local ecological transitions. Djibouti applies a $17/tCO2e tax on maritime transport, using the proceeds to fund mangrove and dry forest restoration. Mozambique has signed mutual recognition agreements with international standards like Verra, easing project integration into its national registry.

The European Union is also at a strategic inflection point. Long restricted to a quota-based approach, it is now preparing to open its market to certified removals. This evolution, still under discussion, would unlock new financing streams to meet 2040-2050 climate targets while aligning with the Paris Agreement.

4. Toward a Hybrid and Harmonized Global Market

All signs point to the same conclusion: the carbon market is no longer divided between a "voluntary" world and a "compliance" world. A hybridization is underway. It rests on progressive regulatory alignment (Article 6, SBTi, ISSB, ETS, CORSIA), increasing political will (e.g. the UK–Kenya–Singapore–France–Panama coalition), and growing economic maturity (stabilized prices, public tenders, partial fiscal integration).

This process paves the way for a structured, reliable global carbon market, where ecosystem restoration projects – especially in the Global South – can generate high-value credits recognized by both private buyers and public regulators.

Conclusion

The convergence between voluntary and compliance carbon markets is no longer a projection: it is happening. It is turning carbon credits into a true climate currency, aligned with net-zero trajectories, embedded in fiscal frameworks, and delivering substantial social and ecological co-benefits.

In this new paradigm, carbon credits are no longer a discretionary corporate tool but a strategic lever for global climate planning.

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