The rising risk in carbon markets: Who’s really carrying it?

In today’s evolving carbon market, one player is shouldering more and more risk: the project developer.

At first glance, developers may seem to be riding the wave of climate finance. But look closer, and a growing imbalance becomes clear. As expectations increase—from buyers, platforms, rating agencies, and now governments—so does the burden. Developers are expected to meet stricter standards, navigate more complex requirements, and deliver impact in environments that are often unstable or underfunded.

You follow the methodology. You meet the standard. You generate real impact. But if your project isn’t labeled “high quality,” your credits might not sell. And when that happens, it’s not just your financials that collapse—it’s the trust of local communities who relied on those revenues for tangible, promised benefits.

The reason I’ve been developing projects in Africa since 2007 is simple: to generate carbon credits while improving the lives of local communities. But investing millions into a carbon project is always risky—because you never really know what could change tomorrow.

Project developers have always carried risk. Delivery risk is part of the job—especially with nature-based solutions, where outcomes are inherently variable. Country and political risk is another constant, particularly in the Global South. But today’s carbon markets are introducing new dimensions of exposure. Market acceptance risk means even verified credits may be rejected if platforms or rating agencies don’t classify them as “high integrity.” Reputational risk can flare up overnight, even if every rule has been followed. Liquidity risk can wipe out a project’s economics if timing or market access falters. And policy risk—arguably the most unpredictable—can shift the rules midway through long-term implementation.

As the carbon market matures, we’re seeing a proliferation of service providers: advisory firms, due diligence experts, MRV platforms, marketplaces, procurement systems, data and ratings agencies. These actors play an important role in improving transparency and efficiency. But let’s be honest—very few of them are actually developing projects or taking on real risk. They don’t pre-finance. They don’t negotiate with governments. They don’t manage implementation or face multi-decade uncertainty on the ground. Yet all of them rely on the existence of high-quality credits.

Because ultimately, the real value in the carbon market sits in the project and the asset itself—not in the platform, the rating, or the transaction. The value lies in the hectare of forest restored, the tonne of carbon removed, the clean stove used.

A colleague and I often say—half jokingly, half seriously—that we now have more platforms to sell credits than actual projects producing them. That’s not just inefficient. That’s crazy. We’re building a complex market architecture on top of a supply base that isn’t scaling fast enough, while placing nearly all the risk and responsibility on the few who are actually doing the work.

And as if that weren’t enough, Article 6 of the Paris Agreement has added a new layer of complexity: the Corresponding Adjustment (CA). The idea is simple—avoid double-counting by requiring host countries to adjust their national GHG inventories when credits are exported. In practice, though, securing a CA is anything but simple. Developers now need host country willingness, timely government engagement, robust legal agreements, and long-term policy stability—just to ensure their credits will qualify for international markets. Even with a Letter of Approval in hand, a project can be derailed if the political winds change. Some standards are exploring insurance products to mitigate this risk, but they are costly and it remains unclear whether they’ll offer comprehensive protection.

A striking case is CORSIA, the global offsetting scheme for international aviation. It should, in theory, offer a reliable source of demand for high-quality credits. But here too, the inability to operationalize Corresponding Adjustments is a major obstacle. Governments often lack the capacity to process CA authorizations, and their internal timelines don’t align with commercial project development cycles. Even the role of Article 6.4 credits remains unclear—will they be accepted under CORSIA, or will the market be limited to government-to-government transfers? These unanswered questions make long-term planning nearly impossible for developers.

This is not a marginal issue. The aviation sector alone is expected to require around 150 million carbon credits per year to meet CORSIA compliance in the coming years. But unless there’s a credible and accessible path to secure CAs, that demand will go unmet—not because the projects don’t exist, but because the risk sits in the wrong place. And if Article 6.4 credits don’t find a home beyond government buyers, the mechanism itself could be undermined before it ever scales.

If we truly want to scale high-integrity climate action, we need a carbon market where risk is shared—not dumped on the developers doing the hardest, riskiest work. That means embedding risk-sharing mechanisms into transactions and finance structures. It means demanding early and consistent engagement from host governments. It means designing predictable, objective quality signals that don’t change with headlines. And it means offering real pre-financing—so that projects don’t have to wait years before seeing revenue.

As Mandy Rambharos, CEO of Verra, aptly noted, “Yet, critics in their comfortable perches in lands afar, have been quick to dismiss these projects, and often the entire Voluntary Carbon Market.” This observation underscores a disconnect between distant critics and the on-the-ground realities faced by project developers.

Because when developers collapse, projects collapse. And when projects collapse, it’s the communities and ecosystems we claim to protect that suffer first.

True integrity means valuing the people who make it possible—starting with those who take the greatest risks on the ground.

This article is also published 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.