How the Convergence Between Compliance and Voluntary Carbon Markets Is Shaping the Next Era of Climate Finance
As the world accelerates toward decarbonization, two previously distinct systems—the compliance carbon markets and voluntary carbon markets (VCMs)—are increasingly converging. This integration is reshaping how countries, corporations, and investors engage with carbon pricing and climate action.
Compliance Carbon Market: The Expanding Regulatory Landscape
Compliance markets remain the backbone of global carbon regulation. Systems such as the EU Emissions Trading System (EU ETS) and emerging regional schemes in North America and Asia continue to drive demand for environmental instruments.
Governments are tightening emissions reduction targets, raising the price of carbon, and encouraging greater investment in emission reduction projects. As a result, regulated entities are not only reducing emissions internally but also exploring external mitigation mechanisms to meet their obligations more efficiently.
For example, Singapore has implemented a carbon tax as part of its national strategy to support the transition to a low-carbon economy. The tax rate was initially set at S$5 per tCO₂e from 2019 to 2023. In 2024, it was raised significantly to S$25/tCO₂e, with further increases planned to S$45/tCO₂e in 2026 and 2027. The government aims to raise the rate to between S$50 and S$80/tCO₂e by 2030.
This gradual ramp-up is designed to send a strong economic signal to producers and consumers alike—encouraging emissions reductions and investments in low-carbon solutions. About 70% of Singapore's emissions, mainly from the manufacturing, power, waste, and water sectors, are covered by the carbon tax.
The Rise of the Voluntary Carbon Market (VCM)
Parallel to these compliance efforts, the Voluntary Carbon Market has evolved into a vital mechanism for corporate climate action. Companies across sectors are setting net-zero targets, driven by a combination of investor expectations, consumer pressure, and corporate social responsibility goals.
In this context, carbon credits play a critical role. They enable organizations to offset unavoidable emissions while supporting verified projects that remove or avoid greenhouse gases elsewhere. The proliferation of corporate net-zero pledges has created a robust and expanding pool of demand, which is expected to keep rising as decarbonization commitments deepen.
The Emergence of Hybrid Compliance–Voluntary Models
The line between compliance and voluntary markets is increasingly blurring. Hybrid systems—where regulated entities can use voluntary credits to meet part of their compliance obligations—are gaining traction.
In these systems, the overall demand for credits is influenced by two key factors:
The stringency of emissions regulations, and
The extent to which voluntary instruments (such as VCM credits) can be used for compliance.
A notable example comes from South America. In Colombia and Chile, certain voluntary credits can be used to offset carbon tax obligations. This has effectively created a price floor for eligible credits and provided strong demand stability for project developers.
In Colombia, the carbon tax is approximately USD 6.90 per tCO₂e, while in Chile it stands at USD 5 per tCO₂e (as for October 2025). Companies are allowed to offset these taxes using specific credits—exclusively from domestic projects—which are typically sold at slightly lower prices to attract corporate buyers. This mechanism incentivizes project developers to focus primarily on their local markets, where steady demand is guaranteed.
As more countries adopt similar mechanisms—integrating voluntary credits into compliance regimes—the global demand for verified carbon credits will continue to grow.
There is even a growing shift toward referring to the VCM as the “Verified Carbon Market,” reflecting both the hybridization of voluntary and compliance systems and the renewed emphasis on integrity and transparency.
Case Study: China’s Relaunch of the CCER Program
China provides a compelling example of this convergence. In 2024, the country relaunched its Certified Emission Reduction (CCER) system after a seven-year suspension, marking a major step in revitalizing its domestic carbon market.
Key Context
Covers around 5.1 billion tonnes of CO₂ annually from 2,257 key emitters—over 40% of China’s total emissions.
Overseen by the Ministry of Ecology and Environment (MEE).
CCERs are the only offsets accepted under the national Emissions Trading System (ETS) for compliance use.
The CCER National Registry manages project registration, issuance, and transactions.
Program Design and Scope
The CCER program is strictly domestic in scope:
Projects must be implemented within China’s borders and led by Chinese-registered legal entities (or joint ventures where the Chinese partner is the project proponent).
Emission reductions must occur within China and follow MEE-approved methodologies—not international standards like Verra or Gold Standard. Importantly, projects verified under the latter standards are beginning to convert toward CCER program acceptance and thus reduce the available supply of credits to the broader VCM.
The MRV (monitoring, reporting, and verification) process is overseen by government-approved verification bodies.
From its relaunch in early 2024 through March 2025, only nine projects had been approved, with an expected issuance of 9.48 million tonnes of credits. Approved methodologies include offshore wind, solar thermal, forestry (afforestation), and mangrove restoration.
By 2030, the program could generate 300–500 million tonnes of CCER demand, assuming a 5% offset limit within the ETS. This would make the CCER one of the largest single-country carbon offset programs in the world.
Why Convergence Matters
The growing interoperability between compliance and voluntary systems is a pivotal development for the carbon economy. It:
Establishes baseline demand for credible carbon credits.
Enhances price stability by anchoring voluntary credit prices to compliance-driven demand.
Encourages standardization and transparency, which are critical for investor confidence.
Expands opportunities for project developers, especially in emerging markets.
However, while convergence is accelerating, the voluntary and compliance markets won’t fully merge—they’ll learn to dance together.
Compliance demand is rising rapidly, now representing around 24% of total retirements in 2024, up from just 9% in 2023. Meanwhile, voluntary action still dominates, driving most market activity.
Key Trends Shaping This Dual Movement
California’s Cap-and-Trade Program, Colombia’s Carbon Law, and China’s CCER Program are emerging as major sources of demand.
Compliance markets are increasingly leveraging voluntary methodologies and registries.
The two ecosystems will remain distinct—but intertwined in both function and infrastructure.
This convergence has profound implications for how projects are structured, how credits are priced, and how buyers engage with the market.
At Carbonmark, we believe this “dual dance” is precisely where blockchain-enabled infrastructure can shine—creating systems that are transparent, interoperable, and adaptive enough to serve both regulatory pathways and corporate climate leadership.
The Road Ahead
The convergence between compliance and voluntary carbon markets represents a strategic evolution in global climate finance. It connects corporate ambition with policy enforcement, channeling capital toward verifiable emissions reduction projects.
As regulatory frameworks continue to evolve, it is becoming clear that the future of carbon markets lies in transparency, alignment, and collaboration between the public and private sectors.
Sources:
https://www.sylvera.com/reports/convergence-compliance-voluntary-carbon-markets
https://www.gminsights.com/industry-analysis/compliance-carbon-credit-market
https://www.regreener.earth/blog/voluntary-carbon-market-update
