Understanding biodiversity and carbon credits
A climate explainer
By Nidhi Upadhyaya, Sabrina Bachrach Wed, Mar 19, 2025
Biodiversity and carbon credits put a price on the unpriced: ecological and environmental impacts. While both have distinct functions and structures, they share a common goal: putting a price to offset activities that harm biodiversity and the climate. They aim to discourage harmful practices, promote cleaner technologies, and generate capital to finance climate and biodiversity projects.
To better understand these credits, we’ll break down how they’re measured and the markets they can operate in.
What are carbon credits?
The concept of carbon credits is not new. In fact, it’s almost thirty years old. It was first introduced in the 1997 Kyoto Protocol where it commodified greenhouse gas emission removals.
Eighteen years later, the Paris Agreement marked the beginning of a new phase. After years of stalled discussions, carbon trading principles were finally operationalized at the United Nations Framework Convention on Climate Change (COP29). The parties established rules for international carbon markets.
While this could cut $250 billion per year in the implementation of national climate plans, its full impact remains to be seen. Some observers worry that the new carbon market rules are overly complex, lack enforcement mechanisms, and risk low-quality carbon credit trading. Ultimately, this could undermine global climate efforts rather than advance them.
On the other hand, financial institutions like BNP Paribas frame the decision as a positive market signal. According to Morgan Stanley Capital International (MSCI), the carbon credit market’s total value is expected to expand from approximately $1.5 billion in 2024 to $35 billion by 2030. That implies that countries with relatively low emissions but rich natural capital have a strong advantage. They can generate and sell high-quality carbon credits to high-emission countries seeking to offset their footprint.
Understanding carbon markets
Currently, there are two main formats for carbon markets.
The first are voluntary markets. Companies can choose to buy credits from certified projects, oftentimes to improve public perception of their work. The main providers for these certified voluntary carbon credits are VERRA and Gold Standard through rigorous due diligence processes. They set standards; so, reforestation projects, for example, can have guides on necessary hectares or the number of planted trees.
The second are compliance markets, which are established by governments to enforce emission reduction through mandatory rules for companies of a certain size. A well-known example of a compliance market is the EU Emissions Trading System (EU ETS).
But why is the spotlight on biodiversity credits?
In February 2025, parties convened in a meeting to make a decision on financing biodiversity. The conversation started at the 2024 United Nations Biodiversity Conference (CBD COP16) in Colombia months earlier. Focusing on effective ways to close the biodiversity finance gap, governments adopted the first global strategy to finance biodiversity.
Each year, the world falls $700 billion short of the funding needed to protect and restore nature. To close the gap, the parties agreed to reform harmful subsidies—like new concessions for oil and gas in critical ecosystems—and enhance financial mechanisms. While the strategy was monumental, countries are now realizing the scale of the biodiversity crisis.
As leaders increasingly recognize the benefits of biodiversity, there is an increasing need to more accurately value it. But how do you measure nature? One way is through biodiversity credits. These credits are typically measured through area-based metrics (e.g., one hectare of protected land), species-based indicators, or ecosystem health indicators.
Like carbon credit markets, most of the emerging work is happening on a voluntary basis. Voluntary carbon markets (VCMs) have allowed entities to buy and sell credits to honor emissions reductions. The credits fund projects like reforestation or renewable energy that reduce or remove emissions from the atmosphere. Similarly, the voluntary biodiversity credit market enables companies, governments, and investors to fund conservation and restoration projects. However, unlike carbon credits that are based on a global standardized metric (carbon emissions), biodiversity credits are more complex. Essentially, what biodiversity looks like and means in Brazil will be dramatically different from what it means in France, requiring diverse ecological indicators and site-specific evaluations.
What are the challenges?
Biodiversity and carbon markets are emerging and powerful tools to advance resilience. However, there are key challenges and criticisms that have followed them since the discussions began decades ago.
Transparency and metrics will largely determine the success or failure of both voluntary and compliance markets. However, these efforts must be inclusive rather than barriers. Verra and Gold Standard set standards and verify carbon credits. While the move to standardize these markets is admirable, the strict eligibility requirements and extensive paperwork make it nearly impossible for small organizations to register their projects for offsets.
Further, the way these credits are developed are often at the expense of local leaders. For biodiversity and carbon markets, this is especially critical. Indigenous groups and local communities have long criticized such credits, which frequently excludes local ownership and benefits. These communities are recognized for their role in biodiversity protection, yet they are rarely part of these conversations.
But overall, the core concern is that credits do not distract from the larger goal. The core objective of biodiversity and carbon markets must remain focused on preventing carbon emissions and biodiversity loss from occurring. If carbon and biodiversity trading merely relocate the problem or are used as offsets instead of a positive contributor to climate and biodiversity, it’s a clear sign that the underlying incentives are misaligned.
As the world prioritizes biodiversity markets more, there are lessons to be learned. Carbon markets have struggled to address concerns like greenwashing, unclear valuation metrics, and inequitable benefit-sharing. These efforts must inform the ongoing design of biodiversity credit systems to ensure credibility, transparency, and fair distribution of benefits.
What’s next? Looking ahead to COP30
While the voluntary biodiversity credit market is still in its early stages, its growth mirrors the development trajectory of voluntary carbon markets. There is increasing demand and emerging corporate interest in nature-positive investments.
Financing a nature-positive economy is a top priority of the Brazilian government, which is host to COP30. So, the international discussions should take priority in the coming months. For Brazil and the wider region to fully unlock the potential of biodiversity and carbon credit markets, robust governance frameworks, standardized valuation methods, and strong third-party verification mechanisms are essential. They can learn from standards like the Taskforce on Nature-Related Financial Disclosure to better assess and disclose nature-related risks and opportunities.
With COP30 approaching, there is a significant opportunity to advance work on high-integrity carbon and biodiversity markets. With finance on the CO30 agenda, it will be interesting to see how discussions around mainstreaming adaptation metrics for carbon and biodiversity credits evolve. There should be efforts to regularly assess the impact of credit-based projects for resilience and adaptation. These opportunities must also engage local communities to ensure that resulting regulations and standards are sustainable, ensuring that economic growth and conservation go hand in hand.
So far, the private sector has responded positively to the market signals from Article 6 and the biodiversity finance decision. The sector views them as catalysts to scale investments in carbon and biodiversity markets. The climate summit in Brazil could—and should—play a pivotal role in shaping the necessary standards, as stakeholders from the public and private sector work together for the future of our planet.
