State of the Voluntary Carbon Markets 2026
Last updated: February 2026. This article reflects market conditions described in Carbon Direct's 2026 State of the Voluntary Carbon Dioxide Removal Market report, published 10 February 2026. The voluntary carbon market is subject to rapid standard and policy change — verify current project requirements with qualified legal, financial, and technical advisers before committing land or capital.
Key takeaways
- The voluntary carbon market (VCM) stands at an inflection point: supply infrastructure is ready, but buyer demand has not yet materialised at the scale needed to sustain new projects financially.
- Nature-based solutions (forest and land-use projects) dominate carbon dioxide removal (CDR) supply — 95% of CDR credits issued in the spot market in 2025 were nature-based — but investment in this segment remains insufficient to meet projected 2030 corporate targets if significant new buyers enter the market.
- Fewer than 10% of CDR projects reviewed by Carbon Direct met their quality threshold, meaning landowners who enter the market with poorly designed projects face real rejection risk and stranded costs.
- Malaysian and Indonesian forest and peatland projects qualify as nature-based CDR — but landowners must account for EUDR geolocation requirements, national forestry law, and carbon registry standards simultaneously.
- Contracted forward demand for CDR already exceeds 90 million tonnes — early-mover projects with strong co-benefits and verified methodologies are better positioned for offtake agreements than projects entering a crowded spot market.
- Before approaching a developer or broker, landowners should conduct independent tenure verification, land-use change screening against the 31 December 2020 EUDR cut-off date, and a basic additionality assessment.
A buyer in Amsterdam sends your trading contact a one-line message: "We need documented proof your timber supply chain is deforestation-free, and we're exploring offsetting residual emissions — do you have carbon credits?" You have 10,000 hectares of managed forest in Sabah. You have heard that carbon credits can generate additional revenue. You have also heard that the market is complicated, that projects fail, and that buyers are pulling back. All three things are true simultaneously, and knowing which applies to your specific situation is the difference between a viable project and a five-year distraction.
Carbon Direct's 2026 State of the Voluntary Carbon Dioxide Removal Market report, released in February 2026, provides the clearest current picture of where the VCM stands and where it is heading. For landowners in Malaysia and Indonesia weighing whether to develop a carbon project, the report's findings are not uniformly encouraging — but they do contain a navigable path for projects that are genuinely well-designed. This article translates the key findings into decisions you can act on.
What the 2026 VCM report actually says about nature-based projects
The headline finding from the Carbon Direct report is stark: the CDR market remains at just 8 million tonnes — 0.4% of the two-gigaton target that demand projections suggest will be needed by 2050. CDR represents only 6% of the overall VCM. Most organisations holding 2030 climate goals have not yet engaged in CDR procurement at all.
For landowners, the critical disaggregation is between carbon avoidance credits (preventing emissions that would otherwise occur, such as avoided deforestation — REDD+) and carbon removal credits (actively removing CO₂ from the atmosphere through reforestation, improved forest management, or peatland restoration). The Carbon Direct report focuses specifically on CDR, but its findings on nature-based solutions are directly relevant because forests and peatlands are the dominant delivery vehicle for CDR in tropical geographies.
Of CDR credits issued in the spot market, 95% came from nature-based solutions — meaning the segment you are most likely to develop is where nearly all the supply is concentrated. The report flags that investment in nature-based CDR rose in 2025 but "remains insufficient to support 2030 corporate targets if new buyers enter the market." That is a two-sided message: current supply is insufficient for a scenario where corporate demand accelerates, which creates opportunity; but if demand does not accelerate as projected, new supply entering the market faces a thin buyer base.
The forward demand picture is more encouraging. Over 90 million tonnes of CDR demand has been contracted or committed for future delivery. Projects that can secure offtake agreements before committing to development — rather than building to spot-market hope — are in a structurally different risk position.
Important: Carbon Direct reviewed CDR projects rigorously and found that fewer than 10% met their quality threshold. For landowners, this means that engaging a credible project developer with a track record of registry approval is not optional — it is the single most important early decision you will make. A poorly designed methodology is a sunk cost with no credit issuance at the end.
Why Malaysian and Indonesian landowners are positioned — but not automatically competitive
Southeast Asian forest landowners possess real structural advantages for nature-based CDR projects. Malaysia and Indonesia together hold an estimated 15–20% of global tropical forest carbon stocks. Peatland ecosystems in Kalimantan, Sumatra, and Borneo's Malaysian states carry some of the highest per-hectare carbon densities on Earth. These are genuine physical assets.
The disadvantage is equally structural: the regulatory and verification environment has become significantly more demanding since the early REDD+ era, and buyers have become correspondingly more selective. Several converging requirements now apply to any project seeking to attract credible corporate buyers.
National law and concession rights
Carbon rights in Malaysia and Indonesia are not automatically bundled with land title or forestry concession rights. In Indonesia, the legal framework for carbon trading in forests was established through Government Regulation No. 23 of 2021 on Forest Management and Government Regulation No. 46 of 2021, with further implementing rules under the Ministry of Environment and Forestry. In Malaysia, carbon rights sit within a patchwork of state-level forestry enactments, federal frameworks, and, increasingly, the provisions of the national Carbon Capture, Utilisation and Storage (CCUS) policy. Before approaching any developer, you need a legal opinion on whether you hold the rights to sell carbon — not an assumption.
International registry and methodology requirements
Voluntary carbon projects require registration under a recognised standard — Verra's Verified Carbon Standard (VCS), Gold Standard, or the Architecture for REDD+ Transactions (ART/TREES) are the most buyer-recognised for forest projects in this region. Each registry has its own approved methodology list, additionality requirements, monitoring protocols, and permanence buffer pool rules. The methodology selection is not a technicality — it determines your baseline, your monitoring cost, and whether your credits will be accepted by the buyers you are targeting.
EUDR intersection for timber-adjacent landowners
If your land is also under a timber licence or your supply chain includes EU buyers, Regulation (EU) 2023/1115 introduces a direct compliance intersection. The EUDR's cut-off date of 31 December 2020 means that any land deforested after that date cannot supply EU buyers with in-scope commodities — and a carbon project on land with post-2020 deforestation activity will raise serious questions about additionality and permanence during buyer due diligence regardless of the carbon registry's own assessment. Landowners should conduct a satellite-verified land-use change screening before committing to either a carbon project development timeline or an EU export relationship.
The quality threshold problem: why most projects fail review
The Carbon Direct finding that fewer than 10% of CDR projects meet a rigorous quality bar deserves specific attention, because it runs counter to the optimism that often surrounds early project conversations.
The most common failure modes in nature-based forest carbon projects in Southeast Asia are not exotic. They are well-documented:
Baseline inflation. The reference scenario — what deforestation would have happened without the project — is set too aggressively, overstating the emissions reduced or removed. Registry methodologies have tightened significantly on this, but it remains the most scrutinised element of any forest carbon validation.
Leakage underestimation. If your project prevents deforestation on your land but displaces it to adjacent land (either directly or through market effects), the net carbon benefit is lower than the gross benefit. Credible projects quantify and discount for leakage. Projects that do not are increasingly rejected at validation or flagged in third-party assessments.
Permanence risk. A forest carbon credit represents a commitment that carbon will remain stored for decades. Fire, drought, pest, and land tenure insecurity all threaten permanence. Registry buffer pools provide some protection, but buyers doing serious due diligence now look at on-the-ground fire management capacity, community land agreements, and physical climate risk modelling for the specific site.
Tenure ambiguity. Projects where community rights, customary land claims, or overlapping concession boundaries are unresolved face both registry rejection and reputational risk. Free, prior and informed consent (FPIC) documentation is now a baseline requirement under all major standards.
Example: Rimba Lestari Ventures, a family-owned timber concession holder in West Kalimantan, approached a project developer in 2024 about converting a 6,000-hectare block of secondary forest to a VCS REDD+ project. During preliminary validation, satellite analysis revealed that approximately 800 hectares within the proposed project boundary had experienced selective logging after 31 December 2020. This affected both the EUDR status of adjacent timber supply and the carbon baseline credibility. The developer recommended a revised boundary excluding the affected area and a 12-month monitoring period to establish a clean baseline before registry submission. The revised 5,200-hectare project proceeded to validation; the original 6,000-hectare version would not have passed review.
What the demand picture means for your project timeline
The Carbon Direct report identifies a market at an inflection point — poised to grow but dependent on corporate buyers translating commitments into actual purchasing activity. For a landowner planning a project now, the practical implication is that project development timelines and market timing are not independent decisions.
A nature-based CDR project in Southeast Asia typically takes 18–36 months from initial feasibility to first credit issuance, depending on the methodology, registry, and monitoring requirements. By the time your project is ready to sell credits, the market may look materially different from today — either because policy catalysts (updated net-zero standards, compliance mechanisms, national carbon pricing) have accelerated buyer demand, or because they have not.
The report's data on forward contracting provides the most useful signal here. Over 90 million tonnes of CDR demand is already contracted for future delivery. This means corporate buyers who intend to purchase are increasingly doing so through advance purchase agreements rather than spot purchases at the time of credit issuance. A project that enters development without a credible path to an offtake agreement is taking on market risk that a project with even a non-binding letter of intent from a buyer is not.
| Decision point | Lower-risk approach | Higher-risk approach |
|---|---|---|
| Market entry timing | Secure LOI or offtake term sheet before full development | Build to spot market, hope demand materialises |
| Methodology selection | Use buyer-preferred methodology (e.g. ART/TREES for jurisdictional scope) | Use least-cost methodology regardless of buyer acceptance |
| Baseline setting | Conservative, independently reviewed baseline | Internally-optimised baseline at upper crediting limit |
| Tenure status | Fully resolved, FPIC documented before registry submission | Submitted with outstanding community consent process |
| EUDR land-use screening | Completed before project boundary is finalised | Deferred to buyer due diligence stage |
| Developer selection | Track record of registry approval for SE Asia forest projects | Developer with no prior issuance in-region |
The most important implication: projects that address the quality and demand dimensions simultaneously — rather than sequentially — are the ones most likely to reach issuance and find buyers.
How to assess whether your land is genuinely suitable
Not every parcel of forested or degraded land is suitable for a carbon project, and determining suitability honestly before committing to development costs is the single most valuable thing a landowner can do.
A preliminary suitability assessment should address five questions.
1. Do you hold the carbon rights? Separate from land title, separately from timber rights. This requires legal advice specific to the jurisdiction and land category.
2. Is the land's deforestation history consistent with additionality? A parcel that has been stable forest for 30 years may have limited additionality if the baseline deforestation threat is low. A parcel under genuine logging or conversion pressure — with documented evidence — has a stronger baseline case.
3. What does the satellite record show from 2015 to present? Post-2020 forest loss (relevant to the EUDR cut-off) and recent land-use change are both red flags that must be understood before proceeding.
4. Are there unresolved community rights or overlapping claims? FPIC is a process, not a form. Projects in areas with active customary land disputes or unresolved community boundaries will face delays, registry challenges, and buyer scrutiny.
5. What is the realistic credit volume and therefore the project economics? Carbon project development costs in Southeast Asia for a forest project typically range from USD 100,000 to USD 400,000 or more before first issuance, depending on project size, methodology, and monitoring requirements. A parcel that produces 5,000 credits per year at USD 8–12 per credit in the current market is unlikely to cover development costs within any reasonable payback period. Projects need to be large enough, or carbon-dense enough, to generate economics that work.
The standards and certification landscape you need to navigate
Landowners approaching the carbon market for the first time frequently underestimate the number of distinct frameworks that apply simultaneously.
| Framework | What it governs | Applicable to SE Asia forest projects? | Key requirement for landowners |
|---|---|---|---|
| Verra VCS | Credit issuance and methodology | Yes — dominant in region | Approved methodology, independent validation, monitoring plan |
| ART/TREES | Jurisdictional REDD+ crediting | Yes — increasingly buyer-preferred | Government partnership required in most cases |
| Gold Standard | Credit issuance with SDG co-benefits | Yes — smaller project volume | Stronger community benefit requirements |
| RSPO / MSPO | Palm oil sustainability | If land is oil palm | Deforestation-free supply chain, not carbon-specific |
| EUDR (Reg. EU 2023/1115) | EU market access for in-scope commodities | Yes — if timber, palm oil, or soy on same land | Geolocation, cut-off date compliance, DDS records |
| CSRD (Directive 2013/34/EU) | EU corporate sustainability reporting | Indirect — shapes buyer demand | Buyers will scrutinise credit quality claims more rigorously |
The interaction between frameworks is where many landowners get into difficulty. A project that passes VCS validation but has unresolved EUDR issues on adjacent timber supply will still create problems for EU buyers trying to use those credits in their climate reporting. Treating these frameworks as separate checklists rather than an integrated compliance picture creates gaps that surface at the worst moment — during buyer due diligence.
Frequently asked questions
Can I develop a carbon project on land that also holds a timber or palm oil concession?
Yes, but the interactions are complex. In Indonesia, the Ministry of Environment and Forestry has issued guidance on carbon business activities within existing concessions, but the carbon rights calculation and the permissible scope of project activities depend on the specific licence type and the applicable methodology. In Malaysia, state forestry authorities govern this differently across Peninsular Malaysia, Sabah, and Sarawak. The short answer is that dual-use projects (carbon plus commodity) are possible and have been done, but they require explicit legal structuring rather than assumption. Get jurisdiction-specific legal advice before starting project development.
How long does it take to receive the first carbon credit payment?
For a new forest carbon project under VCS or ART/TREES, the timeline from initial feasibility to first credit issuance is typically 24–36 months. This includes baseline setting, project design document preparation, independent validation, registry submission, and the first monitoring period. If you are also pursuing an offtake agreement in parallel, that negotiation typically happens before issuance — meaning you may secure a committed buyer price before credits exist, which is the preferred position. Do not plan project finances around credit revenue in year one or two.
The Carbon Direct report focuses on carbon dioxide removal — does that apply to REDD+ avoidance projects?
The report addresses CDR specifically, but its findings on nature-based solutions are directly relevant to REDD+ projects because nature-based approaches (including avoided deforestation) are increasingly evaluated by the same buyers against similar quality criteria. The broader trend the report identifies — buyers becoming more selective, quality thresholds rising, and forward contracting replacing spot purchasing — applies to high-quality REDD+ credits as much as to removal credits. Some corporate buyers now explicitly prefer removal credits over avoidance credits for meeting net-zero targets, which is a trend worth understanding before selecting your project type.
What does "fewer than 10% of CDR projects meet high-quality thresholds" mean for my project?
It means the probability of a randomly designed project meeting serious buyer quality standards is low — not that a well-designed project cannot meet them. The projects that fail review typically do so for known, preventable reasons: inflated baselines, unresolved tenure, inadequate monitoring, or weak additionality cases. A landowner who commissions honest independent feasibility work before committing to development, selects a developer with a verifiable track record, and uses a conservative crediting approach is operating in a different risk category than the average project in that 10% statistic.
Where can I read the full Carbon Direct report?
The full 2026 State of the Voluntary Carbon Dioxide Removal Market report is available directly from Carbon Direct at https://www.carbon-direct.com/press/carbon-direct-releases-2026-state-of-the-voluntary-carbon-market-report. It is the most current independent analysis of VCM trends and is worth reading in full before engaging any project developer or broker.
Next step
If you hold forested or degraded land in Malaysia or Indonesia and are weighing whether a carbon project makes sense, the first step is an independent assessment — not a conversation with a developer who has an interest in the project proceeding. GreenThread can review your land tenure documents, conduct a preliminary satellite-based deforestation screening, and give you an honest picture of project viability before you commit development budget. Book a consultation.