By Mike Edwards, Chairman of Ora Technology PLC (Ora), a company focused on carbon trading, and attempting to facilitate the process of buying, selling, and retiring carbon credits in the voluntary carbon market (VCM).
Â
The aim to limit global average temperature increases to no more than 1.5 degrees above pre-industrial levels is a threshold that we are in imminent danger of crossing. Leading meteorologists forecast earlier this year that by as soon as 2027, this key temperature representing an upper limit on warming to mitigate the worst excesses of climate change, would be hit for the first time. The world must rapidly transition towards a carbon-neutral economy in order to ‘keep 1.5C alive’ but seizing this opportunity is a herculean task that will require combined effort and moreover, investment.
To achieve this transition, we must channel resources and finance toward greenhouse gas reduction and removal projects. A truly accessible carbon credit market will be a catalyst for investment.
Carbon credits are ‘permits’ allowing the holder to emit a certain amount of C02. Typically, companies are issued a set number of credits which reduce over time, with the option of selling on any unused ones. In the mandatory market, which governments including the UK and EU enforce over specific sectors, companies are obligated to purchase carbon credits if they are unable to meet emissions targets, or face enforcement action. In addition to ‘mandatory markets’, there is the Voluntary Carbon Market (VCM), which allows carbon emitters to offset their emissions by purchasing carbon credits created by projects targeted at removing or avoiding the release of greenhouse gases from the atmosphere. Some of the largest companies in the world, Disney, Netflix, Ben & Jerry’s and Apple use carbon credits to offset their emissions. Moreover, as of 2025 the EU’s Corporate Sustainable Reporting Directive (CSRD) will mandate that listed companies headquartered in or with subsidiaries in the EU disclose a broad set of independently verified ESG metrics which will likely further increase carbon credit demand.
The VCM has emerged as an important pathway allowing private capital inflows into carbon reduction and offset projects. The voluntary market is growing rapidly as companies scramble to meet emissions targets, with Shell forecasting that the market will be worth $10-40 billion by 2030. VCM channels funding to where it is most needed, however despite the pressing global need to boost this funding, individuals have to date been lockedout of investment in the carbon market, limiting the potential pool of capital available.
The voluntary carbon market, since its inception, has been largely inaccessible to retail investors seeking direct investment due to an onerous process of managing trades. This has rendered the market a preserve of large companies and institutions able to negotiate directly with offset projects, leaving individuals seeking to invest in the market unable to do so. Retail trading apps, such as ORA Carbon, are beginning to change this granting direct access to the market and the ability to buy, hold and sell carbon credits.
VCM has helped fund and facilitate significant green investment initiatives. Nevertheless, an emerging topic in the global conversation on climate change and transition in 2023 has been how to effectively scale the VCM and strengthen its transparency and credibility. Greater individual investor participation can help on these fronts.
With increased participation, comes transparency. In the past, the carbon credit market has been rightly criticised for its opacity but the market is changing. An influx of retail investors will place pressure on other carbon off-setters to ensure their standards are kept high. Offering a user-friendly interface and simplified investment options, carbon trading apps can empower individuals to participate in carbon credit markets, boosting public involvement this crucial mechanism for carbon reduction. As the proliferation of retail trading apps transformed stock markets worldwide, with retail investors now making approximately a quarter of all share trades, the carbon credit market is too poised for transformation.
While some observers remain circumspect as to whether businesses will sufficiently reduce their own emissions if they have the option to instead offset, undoubtedly a dynamic, large-scale voluntary carbon market will help encourage green initiatives by financing the much-needed carbon reduction projects that produce offset credits. Moreover, a lively market will help ensure more accurate pricing for credits, if carbon credit prices increase this can also encourage businesses to accelerate decarbonisation activity. By opening the carbon market to a host of new investors, it gives retail investors the opportunity to generate profits while safeguarding the planet’s future.
Many of these credits are created through the protection of forestry. Deforestation is highly profitable, especially in developing economies, and is difficult to stamp out without a significant capital injection. Estimates suggest that the cost of protecting forests will reach upward of $393 billion annually by 2050, but the voluntary carbon market is worth just $2 billion today. Increased retail trader participation in the voluntary carbon market will help the market scale up, providing a cost incentive in keeping forests in place.
Carbon credits are a pivotal tool in facilitating transition to net zero. The democratisation of the carbon credit market, brought about by the inclusion of retail traders, holds the potential to revolutionise emissions trading while directing private financing to climate-action projects that would otherwise go unfunded.
