Carbon credits are not cash: The hidden gap between project valuations and real revenue

A $20 million project that never earns $20 million

Imagine a project forecasting 100,000 carbon credits a year for ten years. At an assumed price of $20 per credit, its headline opportunity looks like $20 million. That number may be useful for discussing market potential. It is not a valuation of a bankable asset, and certainly not a forecast of profit.

Suppose performance and verification reduce the total quantity eligible for issuance from one million tonnes to 800,000 credits. By the time sales close, only 600,000 credits have been monetised at an average price of $15. Gross proceeds are $9 million, before operating expenses, capital investment, verification costs, financing and contractual revenue shares. This is an illustrative stress test, not an industry average or a claim about any actual project.

The point is not that carbon finance necessarily destroys 55% of expected value. It is that different numbers answer different questions. A projection estimates potential climate impact. A verified result supports a claim about what happened. An issued credit is a registry unit. A sale creates a commercial obligation; payment creates cash. Underwriting must follow the entire chain.

One carbon project, several very different numbers

Project documents, registries, press releases and corporate sustainability disclosures often report different stages of the same economic journey. A robust investment memo should identify them separately:

Verra’s published guidance explicitly separates project monitoring, third-party verification, verification approval and the subsequent request for credit issuance.¹ That administrative distinction is material: even verified climate performance has not automatically become sellable inventory. Nor does a public retirement or transfer record, by itself, identify the financial consideration behind a trade.

What major offtakes reveal – and what they conceal

Publicly announced offtake agreements illustrate the difference between market commitment and completed delivery. In September 2024, Frontier disclosed a $25.4 million agreement with CarbonRun for 55,442 tonnes of river-alkalinity carbon removal, with deliveries scheduled across 2025–2029.² The simple ratio is about $458 per contracted tonne. That is an implied contract-average figure, not a verified spot-market price, supplier profit margin or evidence that every tonne has already been delivered and paid for.

The disclosed price also reflects a specific technology, delivery pathway and monitoring requirements. It should not be extrapolated to a conventional avoidance project, or even to every other removal technology.

In May 2024, Stockholm Exergi announced a 3.33 million-tonne bioenergy with carbon capture and storage agreement with Microsoft, with deliveries then scheduled from 2028 over ten years.³ In May 2025, the parties announced that the contracted volume had expanded to 5.08 million tonnes.⁴ These disclosures demonstrate substantial buyer demand for future durable removals. They do not establish the undisclosed contract price, the project’s net margin or the percentage of contracted tonnes already delivered.

This distinction matters for investors. An offtake can support fundraising or project financing, but it also creates delivery expectations. Its value depends on credit eligibility, operational execution, payment milestones, remedies for shortfall and the creditworthiness of the purchaser.

Why quoted carbon prices are rarely comparable

Carbon markets are not one uniform commodity market. A credit associated with avoided emissions, a nature-based removal and a technologically durable removal can have different measurement rules, reversal risks, buyers and prices. Vintage, geography, methodology, independent ratings, monitoring quality and contract duration further affect commercial outcomes.

Ecosystem Marketplace reported a voluntary carbon market value of approximately $535 million for 2024, following several years of contraction.⁵ A large long-term engineered-removal announcement and an aggregate voluntary-market statistic describe different market segments. Comparing them without context can be just as misleading as multiplying forecast credits by an attractive advertised unit price.

For project valuation, the relevant price is not “the market price of carbon”. It is the probability-weighted, contractually achievable net price for the specific credit and its expected delivery date.

Time can erode value even when tonnes are delivered

Carbon projects often incur expenditure before their first sale. Feasibility work, community agreements, equipment, monitoring systems, validation and verification may require significant capital. The timing of validation, issuance and buyer payment can therefore be as decisive as the number of tonnes.

Consider $1 million of net proceeds expected two years from now. At a 10% annual discount rate, its present value is roughly $826,000. If receipt slips by another two years, present value falls to about $683,000 – a further 17% decline, with no change in nominal price or volume. This is financial arithmetic, not a claim that all registries routinely experience two-year delays.

A forward sale can reduce revenue uncertainty, and an advance payment may improve liquidity. But discounted forward prices, guarantees, replacement obligations and delivery penalties can shift risk back to the developer. Any investor should examine the signed agreement rather than assume a public offtake announcement resolves financing risk.

Additionality and co-benefits belong in the commercial analysis

Many projects generate other forms of value: electricity, agricultural products, avoided waste-handling costs, biochar, biodiversity benefits or improved livelihoods. These can strengthen a business model. They also complicate the financial counterfactual used to demonstrate additionality, depending on the applicable crediting programme and methodology.

A developer cannot simply assert that all co-product revenue proves commercial success, or that carbon revenue is automatically additional. Buyers and auditors need to understand what activity would likely have happened without the credit incentive and what evidence supports that conclusion.

Community agreements, land-use rights and benefit-sharing arrangements are equally consequential. They affect the ability to continue monitoring, secure feedstock or land access, maintain local participation and ultimately deliver credits. These are operational and legal matters, not merely reputational considerations.

A five-question test before assigning value

A more disciplined carbon project assessment begins with five questions:

1. What proportion of forecast tonnes has been independently verified and issued, and over what monitoring periods?
2. What quantity is actually contracted or sold, and which delivery conditions remain outstanding?
3. What realised or contractually supported unit prices are evidenced, rather than assumed from unrelated market quotes?
4. When are funds payable, and what are the consequences of delayed or insufficient delivery?
5. After capital expenditure, operating costs, audits, financing and benefit sharing, what cash flow remains under conservative scenarios?

For a new project with no issuance history, the answers must rely on disclosed assumptions and comparable evidence, with wider sensitivity ranges. For an established project, historical monitoring reports, registry records and transaction documentation provide stronger anchors. Neither approach justifies equating projected tonnes with cash.

From carbon potential to investment discipline

Carbon markets need credible project pipelines and willing long-term buyers. They also need better financial vocabulary. Project developers should not be discouraged from communicating ambitious future volumes, and forward purchasers should not be discouraged from supporting innovative technologies. But projected impact, verified performance, registered units, contracted delivery and settled revenue should never be presented as interchangeable.

The industry’s next step is not simply to publish more impressive tonnage figures. It is to explain the path from those tonnes to real climate outcomes and sustainable project economics – with transparent assumptions, appropriate risk adjustments and evidence proportionate to each claim. The most investable carbon asset is not necessarily the one with the biggest headline valuation. It is the one whose climate integrity and commercial cash flows can both withstand scrutiny.

illuminem Voices is a democratic space presenting the opinions of leading Sustainability Thought Leaders, their views do not necessarily represent those of illuminem.

The world needs sustainability knowledge. At illuminem, no interest group or shareholder can influence our work. Thank you for supporting our mission to make high-quality and independent sustainability information free for all. Every contribution helps. Thank you for donating today.