Why carbon credit quality is now driving corporate strategy

In Indonesia, a peatland forest area as large as Greater London is being protected through initiatives that reduce wildfire risk and create economic opportunities for local communities, helping to curb deforestation. These efforts are financed through carbon credits, with recent buyers paying more than $10 per tonne of carbon to support conservation. In contrast, a similar project in Africa that relies on carbon credit revenues to protect tropical rainforests has struggled to sell credits for less than $1 per tonne. Although these projects appear similar to an outside observer, the stark difference in value reflects the growing emphasis on quality and integrity that is reshaping carbon credit markets.

Following several high-profile scandals involving claims of over-crediting and weak environmental integrity, new guidance and stricter due diligence are driving a widening value gap within the market. As a result, companies are being forced to move away from the old strategy of simply buying the cheapest available credits and instead engage more actively in evaluating quality.

This behavioural shift is increasingly evident in both trade and investment. Our analysis of September 2025 trading data shows that companies are paying significant premiums for high-quality projects while heavily discounting weaker alternatives. The result is a far more complex market – one that financial professionals must understand to appropriately advise corporate clients navigating increasingly sophisticated carbon procurement strategies.

Quality ratings are driving trading premiums

Recent trading data demonstrates that buyers are conducting detailed due diligence before making carbon credit purchases. Companies buying carbon credits are relying on specialist expertise, evaluating projects and markets, and paying significant premiums for projects they trust will deliver the promised environmental benefits. This is creating significant price spreads based on project ratings within the same categories – something unthinkable just two years ago.

Fastmarkets’ assessment of forestry projects rated by BeZero – a leading carbon credit rating agency – demonstrate this clearly. High quality AA-rated REDD+ (a framework for reducing emissions from deforestation and forest degradation in developing countries, plus additional forest-related activities that protect the climate credits) trade between $9.00 and $10.15 per tonne, while lower quality C-rated credits from similar forestry projects trade at just $0.40 to $3.10.

This quality focused buying extends beyond forestry to other project types. For afforestation and reforestation projects (ARR), high-quality BBB-rated credits trade at $40.00 to $45.00 per tonne, while lower-quality C-rated projects trade at just $3.30 to $12.65.

Companies are increasingly discerning at a project level, rather than treating all credits as substitutable products. For example, Indonesia's Katingan forestry project, which received a AA rating from BeZero, has dominated recent trading activity with credits selling for $9.95 to $10.15 per tonne. In contrast, credits from the C-rated Southern Cardamom project traded for just 15 cents per tonne in August.

This significant difference shows how companies are rewarding high quality projects while avoiding those with weaker credentials.

Trading is being shaped by credit types and geography

Forest management projects reveal another important quality distinction that affects pricing - the way in which products address emissions. There are two types of carbon credit:

• removal credits, from projects removing carbon from the atmosphere
• avoidance or reduction credits, that prevent carbon from being released

Many companies have a clear preference for credits that remove carbon rather than those that simply avoid emissions. These projects often align better with a company’s net-zero commitments that require carbon removal from the atmosphere. This is also reflected in willingness to pay. Many improved forest management (IFM) projects will both avoid emissions and remove emissions from the atmosphere. However, the valuation of these credits may differ, with removal credits recently assessed at a price of $16.60 per tonne compared to just $12.00 per tonne for avoidance credits.

Prices and liquidity are also affected by location. For instance, several projects in Brazil and Indonesia have seen persistent activity while those in Africa have struggled to find buyers. Meanwhile, new markets are opening up. For instance, India and Japan have just signed their first carbon credit partnership agreement, creating new opportunities for companies to invest in Indian projects and use the credits towards their climate goals.

What this means for corporate buyers and their financial service providers

The carbon credit market is becoming much more selective, with buyers carefully evaluating projects before purchasing, which creates big price differences between ‘good’ and ‘poor’ projects. Companies are moving away from simply buying the cheapest credits towards choosing specific projects that match their particular needs and goals.

There are several considerations for these audiences.

• Research is essential. The huge price differences between high and low rated projects mean companies must thoroughly evaluate each carbon credit purchase. All credits are not created equal, and failing to distinguish between high- and low-quality credits will lead to misallocation of capital and creates reputational risk.

• Choose projects carefully. Companies are now picking credits based on specific factors - project type, location, and quality ratings - rather than buying whatever's cheapest. This selective approach requires understanding what different types of credits actually deliver.

• Watch market developments. New regulations and trading schemes are constantly emerging, creating both opportunities and risks. Companies need to stay informed about regulatory changes that could affect their carbon credit options and costs.

For financial services professionals advising corporate clients, understanding these dynamics becomes essential as corporates seek to meet their net zero commitments and regulatory requirements expand.