The global business landscape is undergoing a profound transformation, with carbon rapidly emerging as a central economic factor. This shift, driven by escalating climate imperatives, evolving regulatory frameworks, and the tangible financial implications of carbon, is reorienting economic activity. For businesses in the Netherlands and beyond, strategically navigating this new carbon economy is paramount for long-term trust, value, and resilience.

The scale of this shift is staggering. The global carbon credit market, encompassing both the compliance and voluntary segments, is demonstrating exponential growth. Valued at USD 669.37 billion in 2024, it is projected to surge to an astonishing USD 16,379.53 billion by 2034, expanding at a remarkable Compound Annual Growth Rate (CAGR) of 37.68% from 2025 to 2034. This growth signals that carbon, once a niche environmental concern, is now a core pillar of global economic strategy.

This article is written by Mario van den Broek ([email protected]), Bart Ladru ([email protected]), and Kirill van der Velde ([email protected]). Mario, Bart, and Kirill are part of RSM Netherlands Business Consulting Services, with a specific focus on Sustainability and Business Strategy.  

Carbon as a transformative economic force

Historically, carbon emissions were an unpriced externality. Today, they are being commodified and integrated into global financial systems. This marks a fundamental economic shift where the "cost of pollution" becomes a measurable, tradable asset or liability. Businesses are required to incorporate carbon costs and opportunities into their financial models and strategic plans, fundamentally changing how they operate and make investments. Engaging with carbon is no longer just about environmental responsibility; it is closely tied to financial success and competitive edge.

The rise of carbon as a key economic force mirrors the transformative path of digital currencies like Bitcoin. Just as Bitcoin shifted from a niche innovation to a major financial disruptor, driven by digital scarcity, investor interest, and institutional uptake, carbon markets are experiencing a similar shift. They are evolving from specialized environmental tools to fundamental economic assets, driven by increasing regulatory pressure, expanding corporate net-zero goals, and the urgent need for climate action. Carbon credits are therefore becoming a new asset class that impacts investment flows and strategic choices. However, unlike Bitcoin, whose value can be heavily affected by speculation, carbon's intrinsic worth is firmly based on the real necessity of ecosystem restoration and decarbonization. This value is strongly supported by policy, regulation, and a science-based demand for quality and integrity. As carbon markets develop, they are not only transforming traditional risk management but also redefining the vital link between environmental responsibility and financial success, much like digital assets have changed perceptions of value and trust in today’s economy.

This expansion is further propelled by increasingly stringent government policies and regulations aimed at reducing greenhouse gas (GHG) emissions, coupled with a significant rise in corporate net-zero commitments and robust Environmental, Social, and Governance (ESG) investor demand. Carbon pricing mechanisms effectively internalize the environmental cost of emissions, creating powerful financial incentives for decarbonization and fostering innovative low-carbon technologies.

Understanding the carbon market ecosystem

The global carbon market is a multifaceted ecosystem. Compliance Carbon Markets (CCMs) serve as the regulatory backbone, consisting of highly regulated systems established by governmental bodies that compel high-emission industries to adhere to specific emission reduction targets, primarily through cap-and-trade systems. Examples include the EU ETS and China's national carbon market. CCMs are characterized by mandatory participation, stringent verification, and generally higher prices due to regulatory pressure.

In contrast, Voluntary Carbon Markets (VCMs) offer a flexible platform where organizations and individuals proactively choose to offset their emissions by financing projects that reduce or remove greenhouse gases. While VCM transaction volumes saw a decline in 2024, underlying demand remained resilient. The market is currently navigating a transition phase with an intensified focus on quality and integrity, driven by initiatives like the Voluntary Carbon Markets Integrity Initiative (VCMI) and the Integrity Council for the Voluntary Carbon Markets (ICVCM).

It's crucial to distinguish between "carbon credits" (typically associated with mandatory compliance markets) and "carbon offsets" (usually traded on the voluntary market, representing a reduction or removal of GHGs). While CCMs offer lower integrity risks due to high regulatory oversight, VCMs provide greater flexibility but demand careful due diligence to mitigate risks like greenwashing and ensure genuine environmental impact.

Economic dynamics and financial returns: Is carbon the "next big thing"?

The evidence strongly suggests that carbon is indeed evolving into a major economic force. The global carbon credit market's projected growth to over USD 16 trillion by 2034 positions it as one of the fastest-expanding economic sectors globally. The compliance segment currently accounts for over 98% of this market, underscoring the significant impact of government policies.

This growing market has led to various investment options, including buying carbon credits directly, investing directly in carbon projects, and investing in publicly traded companies in the carbon sector. Highly liquid options include Carbon Exchange-Traded Funds (ETFs) and futures contracts, with some carbon-focused ETFs delivering notable positive returns. Additionally, Green Bonds have become an important tool for directing capital toward environmentally friendly projects, with the market reaching an impressive $2.9 trillion and expected to continue growing strongly.

Crucially, the rise of carbon is driven not only by the potential financial gains from green investments but also by the growing economic costs of inaction on climate change. Studies show that allowing global warming to reach 3°C by 2100 could cut total economic output by 15% to 34%. Climate-related disasters and the loss of ecosystem services already cause billions in losses each year. This strong economic argument for climate mitigation and adaptation supports the strategic move to incorporate carbon management into main business operations.

Drivers of Carbon's Ascendancy in Business

Several interconnected drivers are increasing carbon's prominence. First, expanding regulatory frameworks and carbon pricing mechanisms are creating a financial incentive for organizations to account for the cost of emitting carbon. Governments worldwide are more frequently implementing and expanding these mechanisms, with carbon pricing revenues surpassing $100 billion in 2024. Key developments like Article 6 of the Paris Agreement, the expansion of the EU ETS, and the full implementation of the EU Carbon Border Adjustment Mechanism (CBAM) highlight this trend.

Secondly, corporate net-zero commitments and sustainability initiatives are driving significant change. Many of the world's largest companies are committing to net zero by 2050, involving reducing Scope 1, 2, and especially Scope 3 emissions. Beyond environmental compliance, these targets offer substantial business advantages, including operational cost savings, enhanced financial performance, risk mitigation, and improved business resilience. Companies integrating ESG priorities consistently outperform peers in Total Shareholder Returns.

Thirdly, growing ESG investor demand and sustainable finance have significantly fueled carbon's importance. Global ESG Assets Under Management (AUM) are projected to surpass USD 40 trillion by 2030, driven by increasing awareness of climate change and a growing demand for sustainable investments. Companies excelling in carbon management are increasingly appealing to this segment, securing financial support and investment. A notable generational shift indicates that younger investors exhibit a much stronger interest in sustainable investing.

Finally, technological advancements and new business opportunities are critical enablers. Innovation is revolutionizing carbon management through Digital Measurement, Reporting, and Verification (dMRV) technologies like satellite sensing, IoT, blockchain, and AI/ML, which enhance transparency, accuracy, and efficiency. Carbon Capture, Utilization, and Storage (CCUS) is becoming essential for reducing CO2 emissions in "hard-to-abate" sectors. Furthermore, Circular Economy Business Models aim to keep materials and products in use for as long as possible, thereby significantly minimizing waste and reducing demand for virgin materials, which in turn lowers carbon emissions and offers economic growth opportunities.

Challenges and risks in the carbon market

Despite its immense potential, the carbon market faces significant challenges. A primary concern is market integrity and trust, particularly within the VCM, where issues such as overestimated carbon sequestration, double counting, and "greenwashing" have faced criticism. Initiatives such as VCMI and ICVCM are crucial for establishing global benchmarks for high-integrity carbon credits.

Another challenge involves price volatility and liquidity risks. Carbon markets are subject to price fluctuations driven by shifts in supply and demand dynamics, as well as regulatory changes. This volatility introduces considerable risk for businesses relying on carbon credits for compliance or offsetting, necessitating diversified portfolios and robust risk mitigation strategies.

Finally, regulatory inconsistencies and fragmentation pose a significant hurdle. Despite increasing global pressure, the global carbon market remains somewhat fragmented, with varying mechanisms and inconsistent pricing across jurisdictions. This complexity requires continuous monitoring and contingency planning for multinational companies.

Forward thinking

Carbon is unequivocally emerging as a transformative economic force, poised to drive global business for decades to come. Its enduring value is rooted in the urgent need to decarbonize the global economy. This makes carbon a "next big thing" with a unique and robust foundation, driven by tangible environmental outcomes and expanding regulatory frameworks, rather than speculative digital scarcity. The commoditization of carbon emissions is fundamentally redefining value, linking environmental performance inextricably to financial viability and competitive advantage.

For businesses, this evolving landscape presents substantial opportunities for strategic growth and enhanced resilience. To effectively capitalize on this transformation, the following recommendations are critical:

  • Integrate Carbon into Core Business Strategy: Businesses must embed carbon considerations directly into their financial planning, investment decisions, and risk assessments. This includes understanding carbon pricing impacts, assessing climate-related financial risks, and identifying green finance opportunities. Proactive management of carbon-related risks and opportunities will enhance investor appeal, improve access to capital, and build long-term business resilience.
  • Prioritize Value Chain Decarbonization and Technology Adoption: Actively manage the entire carbon footprint, with a particular emphasis on indirect Scope 3 emissions, which are increasingly scrutinized. Leverage technological advancements like Digital Measurement, Reporting, and Verification (dMRV) for enhanced transparency and accuracy, and explore emerging solutions such as Carbon Capture, Utilization, and Storage (CCUS) and circular economy models for deep decarbonization.
  • Navigate Regulatory Complexity and Uphold Market Integrity: Continuously monitor the rapidly changing global regulatory landscape, including developments in international agreements and regional ETSs. Concurrently, adhere to and support market integrity initiatives like VCMI and ICVCM to ensure credible climate claims, mitigate reputational risks, and maintain competitive advantage in an evolving carbon economy.

By embracing these strategic imperatives, businesses can position themselves not only to meet environmental mandates but to thrive economically in a carbon-constrained world, building trust, delivering value, and ensuring long-term resilience.

RSM is a thought leader in the field of Sustainability consulting. We provide frequent insights through training and the sharing of thought leadership, based on our detailed knowledge of industry developments and practical applications gained from working with our customers. For more information, please contact one of our consultants.