The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has published new research which provides the first transaction-level evidence of how prices form in the voluntary carbon market (VCM). It reveals significant disparities between advanced and developing economies and offers insights for improving transparency and fairness in carbon trading.
The WFE Research Paper, Carbon Inequality: Price Discovery and Market Dynamics in the Voluntary Carbon Market, authored by Dr Ying Liu, Financial Economist at the WFE, analyses more than 250,000 carbon credit transactions across 2,200 projects worldwide between 2017 and 2024, using econometric and machine learning methods.
Key Findings:
- Credits from nature-based solutions such as forestry and land use projects are priced 67% higher than those from technology-based projects like renewable energy.
- Older credits trade at 9–23% discounts, reflecting buyer preference for newer vintages, presumably perceived as more credible.
- Projects with larger available inventories experience lower future returns, confirming that excess supply depresses prices.
- Past returns and prior inventory levels are the strongest predictors of near-term price movements.
- Credits from advanced economies are priced 28% higher on average than those from emerging markets and developing economies (EMDEs), even after adjusting for project characteristics. The premium is closely linked to stronger rule of law and governance quality of the jurisdiction where the carbon project is located, not to investor home bias.
- Retirements of credits peak in December, aligning with corporate sustainability reporting cycles and offset deadlines.
The analysis shows that governance quality and institutional strength of the project’s host jurisdiction play a central role in determining carbon credit value. This is why price discrepancies occur between carbon credits in advanced economies compared to EMDEs.
Dr Pedro Gurrola Perez, Head of Research at the WFE, said, “Climate finance is critical for sustainable development in Emerging Markets and Developing Economies. While this is where most carbon offset projects are located, these credits are priced lower than those located in advanced economies. Without closing this pricing gap, the VCM won’t reach its true potential.”
Nandini Sukumar, CEO of the WFE, said, “To make the VCM a truly global climate finance mechanism, we must ensure pricing reflects project quality - not jurisdictional biases. This underscores the urgent need to enhance transparency and address institutional disparities in the VCM. Strengthening governance and pricing mechanisms in emerging economies could expand access to climate finance for high-quality projects in these regions.”
Read the full paper here.
