The Future of Carbon Markets: Why Demand Matters?

In April 2026, Microsoft—the single largest customer of carbon removal credits globally—briefly paused its purchases. The company made 90 per cent of Carbon Dioxide Removal (CDR) purchases in 2025. The pause was less about stopping purchases and more about avoiding generic buying to conduct deeper due diligence. Given how narrow the buyer base already is, that has hit the entire project pipeline of the nascent CDR industry.

Amidst low-quality, non-transparent, and risky carbon credits in a fragmented market with vague methodologies, the demand side of the carbon market faces few and fickle buyers.

For years, the debates on the supply side of carbon markets have obscured the fragility around the demand side: Was that forest really protected? Did that cookstove project actually reduce emissions? Would the project have happened anyway without carbon credit money? These are important questions, but they address only a part of the problem. What also needs to be questioned is: why are companies reluctant to purchase existing carbon credits? Why are there not sufficient buyers in the market? What are the ways to unlock demand?

Amidst low-quality, non-transparent, and risky carbon credits in a fragmented market with vague methodologies, the demand side of the carbon market faces few and fickle buyers. This keeps the market structurally fragile.

Faced with rising scrutiny and methodology concerns, buyers are shifting away from low-confidence carbon avoidance credits toward carbon removal projects.

Who Is Selling and Who Is Buying?

Project developers generate carbon credits by reducing, avoiding, or removing greenhouse gas emissions, where each credit represents one metric ton of carbon dioxide equivalent. On the demand side, governments are making Net Zero Pledges, corporates are setting climate targets, and regulators are creating compliance obligations—all of which create a growing need for credible carbon credits, especially from emerging and developing economies like India, Brazil, and several African economies that offer strong development co-benefits.

Faced with rising scrutiny and methodology concerns, buyers are shifting away from low-confidence carbon avoidance credits toward carbon removal projects. But today, both the existing oversupply of old, low-quality, and low-priced credits and the new high-quality CDR credits fail to command a premium.

The good news is that the supply side is slowly maturing. The Integrity Council for the Voluntary Carbon Market has established  Core Carbon Principles to define credit quality. Project developers are also using better technology—satellite data, drones, and AI-enabled monitoring—to prove that carbon is actually being reduced or removed. At the same time, frameworks such as CORSIA for aviation, India’s Carbon Credit Trading Scheme, and Europe’s border carbon rules are pulling voluntary offsets into compliance structures.

Credit quality now acts as a demand filter, and it operates differently across project types. Biochar projects, for example, are leading durable CDR markets, globally and in India. Because they are measurable, durable, and relatively easy to verify, large buyers are beginning to take them seriously. Google, for instance, has signed a 1,00,000-ton biochar offtake agreement with Indian developer Varaha.

Spot market activity hovered between US$2.7 billion and US$3.7 billion historically (2023-24). But the more interesting story is in forward purchases, where companies commit today to buy future credits from projects still being built. These deals have reportedly reached over US$12 billion against a total carbon credit market valued at US$114.3 billion in 2025.

Taken together, these trends show serious buyers moving toward premium long-term removals, expanding the buyer base to include airlines, manufacturers, logistics companies, and heavy industries.

Moving companies out of defensive “greenhushing” requires legally and reputationally secure frameworks that clarify what they can safely claim publicly.

Three Ways to Unlock Demand

1. Give companies clearer rules                                                        Fear of scrutiny, legal risk, and greenwashing accusations have led to a phenomenon called “greenhushing ”, the deliberate practice of under-reporting or hiding sustainability efforts. When buyers choose anonymity, demand signal loses direction and price discovery suffers.  Moving companies out of defensive “greenhushing” requires legally and reputationally secure frameworks that clarify what they can safely claim publicly.This is where initiatives such as the Voluntary Carbon Markets Integrity Initiative matter. They give companies clearer guidance on using and talking about credits responsibly.  The Science Based Targets initiative (SBTi)’s Corporate Net-Zero Standard V2.0, published on June 11, 2026, provides a mechanism for companies to use carbon credits to complement, not replace, their internal decarbonisation measures.
2. Lower barriers for small buyers                                                                                                         While large companies have the specialised teams and budgets to navigate the complexity of carbon markets, smaller and mid-sized companies find buying credits confusing and risky. Consequently, a large pool of potential demand remains stuck on the sidelines, waiting for entry points that are simple, cost-effective, and less risky. This concentration of demand among a small number of large buyers makes the whole market structurally fragile.This is where demand becomes more than a market signal. It becomes a financing tool. Carbon projects need money upfront, often years before the credits are issued. Without a guaranteed buyer, banks and investors hesitate, as it is a big risk. However, a long-term offtake agreement makes the project bankable, telling lenders that future revenue is more likely, and this can help unlock cheaper capital.Market aggregators can also help.  Platforms that pool demand from smaller buyers can make high-quality credits accessible to companies that cannot sign large contracts on their own. In effect, they turn scattered demand into something large enough for project developers and financiers to take it seriously.
3. iii. Connect voluntary action with compliance demand                                                                India is a good case study. It is building a Carbon Credit Trading Scheme that will create compliance obligations for major industrial sectors, alongside an offset mechanism allowing non-obligated sectors to generate credits. If designed well, this can connect voluntary supply with compliance demand: projects in agriculture, forestry, waste, or other sectors can generate credits that regulated companies can buy to meet their obligations. A clear climate finance taxonomy would help standardise corporate claims and further integrate compliance and voluntary markets.

The future of carbon markets will not be decided only by better supply. It will be decided by whether we can create credible, predictable, and scalable demand.

The Bigger Point

For too long, carbon markets have been discussed as if the main challenge were producing credits. That is only half the story.

The next challenge is building enough trust, clarity, and demand for buyers to feel confident entering the market. Clearer corporate claims guidance, valuing local co-benefits, and integrating compliance markets are necessary strategic pillars to unlock demand; however, their success is entirely dependent on solving underlying macro-financial bottlenecks, including institutionalising project derisking, overcoming the price premium hurdle for mid-sized buyers, and resolving sovereign accounting bottlenecks under the Paris Agreement.

If we get this right, carbon credits will no longer be seen as a vague corporate add-on or a public relations tool. They can become a serious financial asset that channels private capital into climate projects that would otherwise struggle to get funded.

The future of carbon markets will not be decided only by better supply. It will be decided by whether we can create credible, predictable, and scalable demand.