Improving carbon credit markets: Transparency, quality, and fungibility

Introduction

A project-based carbon credit is a tradable certificate representing the removal or avoidance of one metric ton of CO₂ (or equivalent greenhouse gas) emissions achieved by a specific project. Project-based carbon credit markets are designed to reduce the cost of addressing climate change by channeling capital to efficient mitigation opportunities. They are used by dozens of governments and thousands of companies worldwide, and have helped deliver hundreds of millions of dollars to mitigation projects in developing countries, financed the protection of valuable ecosystems, and created tangible benefits for local communities (Wetterberg et al. 2025; Forest Trends’ Ecosystem Marketplace 2025; Floess et al. 2023; Wunder et al. 2024). Well-functioning carbon credit markets can complement government carbon pricing policies and enable ambitious voluntary action in sectors where direct regulation isn’t feasible.

However, the integrity of carbon credits is frequently called into question. For carbon markets to work, carbon credits should consistently deliver the mitigation outcomes they claim to represent. Unfortunately, an extensive body of research documents that in many instances—across both compliance (i.e., required and regulated by law) and voluntary markets—projects fail to meet basic quality criteria for environmental integrity and accurate estimation (Sanders-DeMott et al. 2025; Gill-Wiehl et al. 2024; West et al. 2023). One recent study suggests that fewer than 16% of credits issued to investigated projects across the market represented real emissions impacts (Probst et al. 2024). As a consequence, credits purporting to represent equivalent one ton mitigation outcomes often vary dramatically in their true impact, and many fail to deliver what they promise.

Integrity issues are worsened by information asymmetry between buyers and sellers. Buyers often lack the information and expertise necessary to differentiate high-quality and low-quality credits. This can cause reputational and legal damage for buyers when outside assessments reveal integrity shortfalls after credits have already been used. Information asymmetry also worsens public distrust of carbon markets and perpetuates perceptions of carbon credits as a tool for “greenwashing.”

For carbon credit markets to operate efficiently—with high trust and environmental integrity—information on credit quality should be readily available, and credits that claim to represent the same outcomes should be fungible. Carbon credits are most commonly used to offset emissions in regulatory systems or support corporate “carbon neutrality” or “net zero” claims (Broekhoff et al. 2026a). When credits are used to make equivalent claims, they should represent equivalent outcomes. When identical offsetting claims are supported by credits that fundamentally vary in their integrity, it undermines the validity of the claims. The same issue arises when carbon credits are allowed to substitute for emissions reductions in regulatory systems. Integrity and fungibility go hand-in-hand; credits should accurately represent claimed outcomes, and they should be interchangeable when used to support equivalent offsetting claims.

Policy intervention to address quality shortfalls, incomplete information, and lack of fungibility would help carbon credit markets operate more credibly and effectively. One key challenge is how to ensure the integrity of emissions impact without sacrificing the diversity of projects in the market. This report will lay out policy options to address this issue, including enhanced transparency requirements to allow for better assessment of credit quality, systemic ex-post evaluation to enable fungibility, and a portfolio approach for buyers to balance underlying risk.

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