Note: This article is the first in a two-part series. In part one, “How Voluntary Carbon Markets Can Reshape Real Estate’s Sustainability Playbook,” we explore the fundamentals of voluntary carbon markets and their potential in real estate decarbonization strategies. Part two will take a closer look at the regulatory and industry frameworks—such as SBTi, the GHG Protocol, and building performance standards—that are redefining how carbon credits and offsets can be applied at the global, national, and state levels.
As the race to net-zero emissions intensifies, one question looms: how to pay for it? According to the International Monetary Fund (IMF), global investment in climate solutions needs to jump from $900 billion in 2020 to a staggering $5 trillion annually by 2030. The real estate sector alone faces a $1.7 trillion-per-year price tag to decarbonize buildings and infrastructure to achieve net zero.
The Asia Carbon Institute (ACI) was founded in 2022 to help close this gap, developing a high-integrity carbon credit registry to strengthen voluntary carbon markets (VCMs). Today, the global VCM is valued at approximately $2 billion and is a fast-moving financial tool. These decentralized markets allow companies to buy and sell carbon credits—each representing one metric ton of avoided or removed CO₂ (or its equivalent for other greenhouse gases)—and in doing so, channel private capital into climate solutions.
Yet many real estate groups have not yet engaged with climate finance or leveraged the VCM. Grounded in her years of consulting experience with clients in this space, Dhruti Patel, currently a senior associate, ESG at Cabot Properties, illustrated some of the key challenges she’s seen for players in real estate. Many common lease structures place utility costs and benefits on tenants, making participation in carbon markets contingent on aligning incentives across multiple stakeholders, Patel explained. “For a real estate company to participate effectively, emissions reduction must be clearly measurable and verifiable for all parties.”
In layman’s terms, carbon credits must be issued by trusted registries that verify real carbon emissions reductions, such as the American Carbon Registry (ACR) and Gold Standard, which have long set the bar for quality and transparency. ACR, founded in 1996, was the first-ever private VCM registry and is keen on science-driven metrics. Gold Standard, launched in 2003, focuses on projects that align with the UN’s Sustainable Development Goals, delivering both climate and community benefits. Newcomer ACI sets itself apart with a focus on fast-growing sectors across Asia.
“VCM funding provides much-needed private capital for climate mitigation and adaptation projects that might not otherwise get off the ground,” says John Lo, founder of ACI. “This flexibility fosters innovation by allowing developers to experiment with new technologies that can eventually reshape how we tackle climate change.”
How VCMs work
Each credit is generated by initiatives that remove or reduce carbon emissions—such as reforestation, forest conservation, or clean energy initiatives—and purchasing these verified credits through VCMs can offset the emissions of a development project or existing building at a fraction of the cost of actual mitigation. Profits from those credit sales are typically reinvested to support the original project or to launch new climate efforts. Once the credit is successfully traded and the offset is recorded, and the credit is moved to a registry where it is no longer tradable. This ensures that the same credit cannot be counted more than once.
Imagine owning a commercial building. Cutting emissions directly—upgrading HVAC and other systems, for example—might cost $160 per metric ton. But a reforestation project in another part of the world might offer a lower abatement cost at just $90 per ton—a substantial savings of $70 per ton while offsetting the same amount of carbon. If a building emits 5,000 tons of CO₂ annually, then 5,000 credits would need to be purchased each year to claim carbon neutrality.
But not all carbon credits are created equal. For VCMs to work, the credits must represent real, measurable, and additional emissions reductions. For example, if a reforestation project is already mandated by local policy, then trading those credits on the VCM doesn’t represent new emissions reductions, since those emissions would have been reduced regardless. It is critical that the carbon credits are actually resulting in carbon reductions through verification by a certified carbon registry.
Opportunities for the building sector
The building sector is notoriously carbon-intensive, contributing an estimated 40 percent of total global emissions. Embodied carbon alone—the total carbon costs incurred during the development, transportation, assembly, maintenance, and life cycle of building materials—is responsible for roughly 11 percent of annual global emissions. Since the emissions associated with embodied carbon are largely “locked in” and can’t be reduced through operational improvements alone, VCMs provide a practical mechanism to compensate for these historical emissions, especially in older buildings where direct mitigation is less feasible. By purchasing high-quality, verified credits through VCMs, real estate developers can save money, reduce their own carbon footprints, and help to scale up the very technologies that could redefine how buildings are made.
In theory, this presents a unique opportunity for the industry to engage VCMs—both to offset embodied carbon and to finance the next generation of low- and zero-carbon materials projects. However, as Patel elaborated, the nature of real estate project implementation makes it more challenging to capitalize on this opportunity. Current carbon credit infrastructure is largely designed for forestry or engineered solutions, not the building sector. Data assurance and additionality requirements make it difficult to validate credits tied to building upgrades, creating credibility and transaction-cost concerns. “Robust methodologies tailored to real estate are necessary,” explained Patel.
New crediting methodologies are beginning to open the door to advanced solutions such as carbon-storing concrete and low-emission steel. For example, ACI has been supporting biochar construction projects, which use a charcoal-like product to sequester carbon in the construction materials. Meanwhile, Gold Standard has an eligible crediting methodology for projects that sequester CO₂ through the accelerated carbonation of recycled concrete aggregates—a novel approach that captures carbon in the demolition and reuse process. Projects like these are now earning verified carbon credits, allowing real estate companies to offset emissions while funding development of low-carbon or carbon-negative materials.
Yet adoption of VCMs in real estate is not straightforward. Patel emphasized that validating credits adds another hurdle to an already complex process—one that most developers and asset managers are not equipped to manage without committing significant time and resources. In order for companies to justify this spending, the system must first demonstrate that it is both practical and scalable.
The credibility challenge
Controversy persists over the credibility of carbon trading. Critics argue that some verification methodologies are too weak, allowing false or misleading claims of progress. This has led to concerns that companies could overstate their CO₂ reductions without actually shrinking their footprint.
The VCM market took a hit in 2023, causing a drop in credit prices and investor confidence. This was a wake-up call: if VCMs are going to scale, they need stronger guardrails, standards, and trust. Fortunately, projections still point to substantial growth. Agreements between key negotiators at COP29 in 2024 brought alignment among countries on credit transfer frameworks under Article 6 of the Paris Agreement, providing much-needed standards to improve credit integrity. These reforms are helping rebuild trust in the VCM market, with market growth estimates ranging from $10 billion to $40 billion by 2030.
With the right safeguards in place, VCMs are a powerful tool for decarbonization—especially when buyers prioritize credits that meet the following high standards set by the Integrity Council for Voluntary Carbon Markets (ICVCM):
- Additionality: Projects must only earn credits for outcomes that wouldn’t have occurred without VCM financing.
- Permanence: Removal of carbon emissions through carbon credits must be permanent and if there’s a chance of reversal, there should be protocol in place to address that risk.
- Verifiability: Carbon removal or avoidance must be accurately quantified using rigorous methodologies that can be checked by robust, independent auditors.
- Transparency: The carbon credit issuer must provide transparent information on all credited activities and make this data publicly available.
- Quantification: The greenhouse gas reductions must be robustly quantified using complete, scientific methods.
- No double counting: Credits must represent a unique, single unit of carbon reduction and after use, can no longer be traded.
- Governance and tracking: The VCM should have effective program governance to ensure all of the above and be tracked by a certified carbon registry.
Credibility is non-negotiable, and ACI and other leading registeries have positioned themselves as models of integrity in the VCM space, aligning their processes with ISO 14000 standards and incorporating the core carbon principles detailed above. Many function as nonprofits, protecting them from commercial pressure, which can potentially compromise the integrity of certification processes.
Putting this into action, ACR leverages a strong additionality test for its Improved Forest Management projects. The three-prong test requires that projects “exceed all currently effective laws and regulations, exceed common practice management of similar forests in the region, and face at least one barrier to its implementation (either financial, technical, or institutional).” Meanwhile, ACI has prioritized transparency and trust through open-access manuals, public consultations regarding their credit methodologies, and life cycle assessments that ensure technology used for a project is running at an acceptable utilization rate.
Even if building-related decarbonization projects could generate high-integrity credits, categorization remains a challenge. Patel explained that under the Oxford Offsetting Principles, nature-based solutions should be prioritized first, followed by long-term engineered removals. Short-term reductions such as efficiency upgrades or on-site energy upgrades—often the most accessible for developers and asset managers to implement and deliver measurable emissions cuts—may be perceived in the market as lower quality by comparison. This framework places real estate decarbonization efforts at risk of being undervalued.
For the built environment, the result is a still-maturing ecosystem of carbon credit certification that needs to balance credit integrity and methodology with bottom-line value to developers.
Looking forward
The building sector stands at a pivotal moment in the fight against climate change, with emerging technologies ready to drive down emissions like never before. The real challenge, however, lies not in the mechanism itself, but in the willingness of real estate companies to embrace solutions like VCMs.
A sustainable future can’t rely on offsets alone, but the path to net zero demands capital—and VCMs offer one immediate solution. For the building sector, VCMs can unlock funding for innovation, decarbonization, and the “future proofing” of portfolios. As trusted registries raise the bar, and demand grows for sustainable development, VCMs have the potential to become a game changer for both the planet and business.
Our mission is to drive climate innovation and encourage companies to pursue those projects through our own innovative VCM financing. We all have a role to play in achieving net-zero emissions – this is ours.
Despite significant barriers of scale, categorization, and infrastructure, voluntary carbon markets hold promise. For now, participation for many real estate firms is aspirational rather than practical, but with a robust framework for standards, thoughtful design, and broader industry commitment, VCMs could evolve into a critical tool for holistic decarbonization.
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