The future of carbon markets: Why we need both avoidance and removal credits

When I first learned about carbon credits as a university student studying Political Economy, I was struck by the concept of the Tragedy of the Commons. This idea explains how shared resources, when used without limits, become depleted—a reality we’ve seen with our atmosphere. For decades, individuals, companies, and nations have emitted CO2 freely, much like cattle overgrazing a pasture. The challenge has always been how to prevent this overuse while ensuring continued economic growth.

One solution has been to place a price on carbon through market mechanisms, encouraging organizations to cut emissions. Yet a long-standing debate remains: should companies focus solely on reducing their own emissions, or is there a legitimate role for offsets? After 20 years in this sector, I have seen that these two approaches are not in competition—they must work together.

The urgency of climate action has led to the evolution of carbon markets. Historically, they have been dominated by avoidance credits, which finance projects that prevent emissions, such as renewable energy and forest conservation. Today, these credits make up 90% of the market, but by 2030, forecasts suggest that removal credits, which actively extract CO2 from the atmosphere, will represent 45%. As scrutiny over avoidance credits increases, many companies are shifting their focus to removals. Media coverage often highlights major corporate investments in carbon dioxide removal (CDR), even though most strategies still depend on avoidance. While carbon removal is essential for long-term climate goals, an overemphasis on removals at this stage risks undermining the broader objective. The reality is that we need both.

In 2020, the University of Oxford introduced The Oxford Principles for Net Zero Aligned Carbon Offsetting, providing a structured framework for organizations. The principles emphasize the need to prioritize emissions reductions first, shift gradually toward removals, use only high-quality credits, invest in carbon removal technologies, and maintain transparency in offset reporting. These guidelines support a phased transition rather than an abrupt shift. However, the growing corporate demand for removals, coupled with limited supply, has led to market distortions that could threaten both avoidance and removal strategies.

Avoidance credits remain a vital tool in the fight against climate change. Projects that conserve forests, restore degraded lands, and promote renewable energy play a crucial role in preventing emissions. Beyond carbon reduction, these initiatives provide significant environmental and social benefits, from preserving biodiversity to supporting local economies. Yet as companies rush to transition their offset portfolios toward removals, many avoidance projects face financial uncertainty, particularly those in the Global South that depend on carbon finance. Ensuring continued investment in these projects is essential.

At the same time, organizations need better guidance to navigate this evolving market. New rating agencies and AI-driven risk analysis can enhance due diligence, ensuring that carbon credits, whether from avoidance or removals, meet high standards of integrity. However, a well-managed transition is necessary to prevent market disruptions and ensure long-term climate finance flows to the projects that need it most.

Beyond supply constraints, one of the biggest challenges for carbon removals is cost. In 2024, companies purchased nearly 8 million tonnes of CDR credits, with 80% of these purchases made by tech giants like Microsoft, Google, Stripe, and Frontier. These companies can afford the high prices—averaging $320 per tonne—but for many organizations, this remains out of reach. While growing demand will eventually drive investment and lower costs, a full shift to carbon removals is not yet feasible for most businesses.

For now, the priority must remain on reducing emissions at the source, with high-quality carbon credits serving as a complementary tool. Emission reduction credits—such as those from renewable energy, conservation, and energy efficiency—will continue to play a crucial role in the coming decade, not only in preventing emissions but also in delivering broader social and environmental benefits. A pragmatic approach that integrates direct emission reductions, avoidance credits, and removals will accelerate climate action without destabilising essential mitigation efforts.

The evolution of carbon markets must be handled carefully. If managed well, they will provide both immediate emission reductions and the long-term development of carbon removal solutions. Rather than pitting avoidance and removals against each other, we should focus on building a system where both approaches work in tandem to drive meaningful climate progress.

This article is also available on Substack. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.