The global carbon market is undergoing transformation in 2025, creating both significant opportunities and complex challenges for competitive intelligence professionals.

Our analysis of Carbon Direct’s comprehensive “Navigator” report provides insights into the rapidly evolving carbon landscape that organisations must navigate.

Despite federal policy changes, including the US withdrawal from the Paris Agreement, momentum for climate action continues to accelerate through subnational policies, voluntary markets, and global initiatives.

States like California and New York are advancing ambitious carbon removal legislation, while countries such as Switzerland and Japan are implementing robust frameworks that reshape global carbon trading. This fragmented policy environment creates a complex landscape for organisations seeking to develop effective carbon strategies.

Our analysis identifies three critical trends reshaping the carbon market:

1. Increasing energy demand from AI and data centres is straining power grids, with some regions projecting up to 53% greater load by 2037. This creates important considerations for emissions strategies. Natural gas with carbon capture and storage (CCS) offers potential as a bridge solution, with the ability to eliminate up to 95% of CO₂ emissions while providing firm power capacity.
2. Marine-based carbon dioxide removal (mCDR) technologies are advancing toward market readiness, with ocean alkalinity enhancement alone having the potential to remove gigatonnes of CO₂ per year. The development of measurement, reporting and verification (MRV) methodologies and ecological impact assessments will be crucial for the sector’s growth.
3. Evolving standards frameworks, particularly the Science Based Targets initiative’s (SBTi) draft Net-Zero Standard update, may create new imperatives for companies to forecast residual emissions and secure carbon removal volumes through spot-market purchases or forward-offtake agreements.

For competitive intelligence analysts, market research managers and strategic planning professionals, these developments present important considerations when formulating carbon strategies. The increasing complexity of carbon markets, spanning policy developments, scientific advancements, and market mechanisms, requires comprehensive analysis approaches.

This analysis explores how organisations can better understand and respond to the complexities of the evolving carbon landscape in 2025 and beyond.

Research Context

This analysis is based on Carbon Direct’s “The Navigator” report from April 2025, a quarterly publication that provides distilled insights on carbon markets, climate science, and policy developments. Carbon Direct brings together expertise in carbon science and market analysis, with contributors including PhD-level scientists, policy experts, and market analysts focusing on decarbonisation strategies and carbon removal technologies.

The Navigator report examines developments across three key areas: policy, science, and markets. By reviewing these interconnected domains, the report offers a comprehensive view of the carbon landscape that can inform strategic decision-making. The April 2025 edition specifically addresses topics including US policy changes, AI’s electricity demand implications, marine carbon dioxide removal advances, and evolving carbon market frameworks.

The report structure covers policy insights (including US federal actions and state-level developments), science insights (examining technologies like natural gas with CCS and marine carbon removal), and market insights (exploring standards evolution and trading systems like CORSIA and Japan’s GX-ETS).

The findings presented in this analysis have particular relevance for competitive intelligence analysts seeking to understand market developments, market research managers tracking emerging technologies, and strategic planning analysts integrating climate considerations into long-term corporate strategies.

Policy Insights: Navigating Fragmented Climate Governance

The climate policy landscape is becoming increasingly fragmented. The Navigator report reveals that while federal changes to climate commitments make headlines, significant action is occurring through a complex web of subnational and international initiatives that organisations must track and understand.

Beyond Federal Policy: Diverse Climate Action Channels

Despite the US withdrawal from the Paris Agreement and executive orders targeting climate initiatives, momentum for climate action continues through alternative channels. The report highlights how over 60% of the clean energy and clean vehicle projects supported by the IRA are in congressional districts represented by Republicans, revealing a complex political landscape that defies simplistic partisan analysis.

For organisations tracking policy developments, this necessitates monitoring across multiple jurisdictions simultaneously. States like California are advancing significant legislation, including SB-643, which requires the State of California to purchase US$80 million in CDR credits by 2030, and SB-285, which establishes regulatory frameworks for carbon removal. Meanwhile, Switzerland’s Net-Zero Timetables Directive and Japan’s Green Transformation League are creating new international frameworks that reshape global carbon markets.

Climate Policy Instruments with Enduring Value

The Navigator report indicates that despite federal rollbacks of climate policies, key tax credits like 45Q for carbon sequestration and 45V for clean hydrogen enjoy strong bipartisan and nationwide support and are likely to survive political transitions.

The report notes that many of the business-oriented tax credits have strong backing across the political spectrum, with both the 45Q credit for carbon sequestration and the 45V credit for clean hydrogen likely to remain stable while consumer-facing credits may face greater uncertainty.

Policy-Driven Market Development

The Navigator report highlights how policy frameworks are creating new market opportunities. For instance, CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) is anticipated to generate demand for 36-75 million tonnes of carbon credits annually by 2026, representing a 20-40% increase over the 2024 total Voluntary Carbon Market demand of about 180 million tonnes.

Understanding these policy-driven market developments allows organisations to identify emerging demand drivers early and position themselves accordingly. This is particularly valuable in carbon markets where early movers may secure advantageous positioning as demand scales.

The increasing complexity of climate policy across federal, state, and international levels requires comprehensive monitoring and analysis to understand the implications for carbon strategy and market positioning.

Science Insights: Technology Developments in Carbon Markets

The Navigator report highlights how technological innovations are reshaping carbon market fundamentals, creating important considerations for organisations developing carbon strategies.

AI-Driven Energy Demand and Carbon Capture Considerations

The report discusses an important trend: electricity demand is growing more rapidly than at any point in the past two decades. Recent forecasts indicate a significant upward trend in peak power usage, with some regions projecting up to 53% greater load by 2037. This growth in power requirements necessitates thoughtful consideration of carbon strategies across multiple sectors.

Natural gas with carbon capture and storage (CCS) is presented as a potential bridge solution, with the ability to eliminate up to 95% of CO₂ emissions from natural gas-fired power generation while providing firm power capacity that intermittent renewable sources cannot match without expensive storage solutions.

The report details important considerations for implementing natural gas with CCS:

1. Timing: Natural gas plants can be built within 18 months, but adding CCS systems extends the timeline by 18-36 months. Power producers can build capture-ready facilities that operate while CCS systems are constructed.
2. Location: These plants can be built where renewable energy is infeasible due to land constraints and positioned strategically near transmission infrastructure.
3. Scale: Natural gas with CCS works best for large, steady electricity users consuming more than 100 MW, making it suitable for applications like data centres.

Marine Carbon Dioxide Removal: Approaching Market Readiness

The Navigator report examines marine-based carbon dioxide removal (mCDR) as a promising technology sector.

Ocean alkalinity enhancement alone has the potential to remove gigatonnes of CO₂ per year, though the sector faces significant challenges in measurement, reporting, and verification (MRV).

The report identifies three critical factors that will determine mCDR market development:

1. MRV standardisation: Developing robust MRV processes requires significant investment in direct measurement and modeling, using sophisticated software and hardware to monitor ecosystem changes and key parameters.
2. Ecological impact assessment: Large-scale seawater treatment or macroalgae cultivation may have complex effects on marine ecosystems that are difficult to predict from laboratory experiments, necessitating careful monitoring and assessment.
3. Community engagement: Successful mCDR projects require close involvement with local communities during planning and governance to ensure benefits are allocated justly and equitably.

The report notes that some carbon dioxide removal buyers have already procured small amounts of mCDR, indicating early market formation.

Evolving Carbon Removal Definitions and Standards

The Navigator report discusses an important scientific and policy debate: what precisely constitutes carbon dioxide removal? The report examines whether the rigid distinction between CDR and emissions reductions is more a policy construct than a meaningful difference in atmospheric impact.

The report identifies two major ambiguities in defining CDR:

1. Many approaches don’t directly remove CO₂ but instead slow its return to the atmosphere, such as burial of wood to halt decomposition.
2. Some CDR methods exist within high-emitting systems (like ethanol CCS or enhanced rock weathering in agriculture), raising questions about whether they reinforce emissions-heavy industries or provide legitimate carbon sequestration.

This evolving understanding of carbon removal has implications for market development, project eligibility, and investment flows, suggesting that rather than rigid definitions, the focus should be on whether projects support scalable, durable, innovative, and effective carbon management systems.

Market Insights: Carbon Trading Evolution

The Navigator report examines how carbon markets are entering a period of significant transformation. As voluntary initiatives converge with regulatory frameworks, organisations face both opportunities and challenges in navigating the evolving landscape.

SBTi’s Net-Zero Standard Update: Market Implications

The Science Based Targets initiative (SBTi) has proposed significant updates to its Corporate Net-Zero Standard, with potential implications for market development. The draft V2.0 introduces three potential approaches for addressing residual emissions before reaching net-zero:

1. Option 1 (requirement): Companies would be required to set near-term and long-term removal targets, including interim CDR milestones, to address projected residual emissions.
2. Option 2 (optional with recognition): Companies could set and receive recognition for removal targets to address projected residual emissions.
3. Option 3 (flexibility of mechanism): Companies would have the flexibility to address expected residual emissions either entirely through additional value chain emissions reductions, entirely through removals, or via a combination of both.

The Navigator report describes these proposed updates as “a welcome change, with the potential to support industry maturation in the CDR market.” The report suggests companies can begin preparing by forecasting residual emissions, determining associated CDR volumes for interim milestone years, and securing these volumes through spot-market purchases or forward-offtake agreements.

However, the report notes two key limitations of the proposed update: the potential for optional rather than required targets, which could limit market development, and the exclusion of scope 3 emissions, which would significantly reduce the scale of CDR purchases.

CORSIA: Emerging Market Dynamics

The Navigator report identifies CORSIA as an important market development in 2025. Under Phase 1 of CORSIA’s compliance period (2024-2026), airlines across 129 participating member countries must limit their annual emissions from international flights to 85% of a 2019 baseline through emissions reductions and offsetting.

According to the International Air Transport Association (IATA), this may translate to 36-75 million tonnes of CDR demand per year by the end of 2026, representing a 20-40% increase over the 2024 total Voluntary Carbon Market demand of about 180 million tonnes.

The report highlights a current supply constraint: Guyanese J-REDD credits sold for nearly US$21.60/tonne in the last CORSIA Eligible Emissions Unit (EEU) auction, approximately five times the price of similar non-CORSIA REDD credits. This price premium may not persist if Letters of Authorization become more broadly available, potentially creating downward price pressure for EEUs.

Japan’s GX-ETS: New Market Formation

The Navigator report examines Japan’s Green Transformation Emissions Trading System (GX-ETS) as an emerging carbon market. The GX-ETS was introduced in April 2023 as a voluntary carbon trading market but will transition to a compliance-based system in 2026, signalling Japan’s shift toward stronger regulatory mechanisms.

Two significant aspects of Japan’s approach stand out:

1. Major financial commitment: Japan has committed US$1 trillion over 10 years to decarbonisation, including significant investments in CDR both domestically and internationally. This includes pilots for CO₂ shipping, biocoke for steel production, and low-carbon ammonia imports, with expectations that nearly all this funding will be directed to GX-League member companies.
2. Evolving regulatory framework: Many aspects of Japan’s approach remain undefined, including standards for acceptance into the GX-ETS marketplace and qualification criteria for “Japanese content” in international investments. These evolving rules present opportunities for strategic positioning as the framework develops.

The report notes that the GX-ETS is expected to become Asia’s second-largest carbon market after China’s ETS, creating significant demand for carbon credits and removal technologies in the region.

Key Statistics and Insights

• Up to 53% greater load is projected by some regions by 2037, according to forecasts indicating a significant upward trend in peak power usage, with implications for carbon management strategies.
  
• US$1 trillion commitment by Japan over 10 years for decarbonisation, including significant CDR investments both domestically and internationally, representing a major market development for carbon removal technologies.
  
• 36-75 million tonnes of carbon credit demand anticipated annually from CORSIA by 2026, representing a 20-40% increase over the 2024 total Voluntary Carbon Market demand of about 180 million tonnes.
  
• Up to 95% of CO₂ emissions can be eliminated from natural gas-fired power generation through carbon capture and storage integration, presenting an important option for organisations balancing energy needs with climate commitments.
  
• Over 60% of clean energy and clean vehicle projects supported by the US Inflation Reduction Act are in congressional districts represented by Republicans, highlighting the complex political landscape that defies simplistic partisan analysis.
  
• US$80 million in carbon removal credits mandated for purchase by the State of California by 2030 under Senate Bill 643, demonstrating how subnational policies are creating significant market developments.
  
• US$21.60 per tonne achieved in the last CORSIA EEU auction for Guyanese J-REDD credits – approximately five times higher than similar non-CORSIA REDD credits – illustrating the current price premium for CORSIA-eligible credits.

Technical Glossary

Carbon Dioxide Removal (CDR): Technologies and approaches that remove carbon dioxide directly from the atmosphere and store it durably in geological, terrestrial, or ocean reservoirs, or in products. Includes both nature-based and engineered solutions.

CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation): A global market-based measure adopted by the International Civil Aviation Organization (ICAO) to address CO₂ emissions from international aviation, requiring airlines to offset emissions above a baseline through eligible carbon credits.

GX-ETS (Green Transformation Emissions Trading System): Japan’s carbon market introduced in April 2023 as a voluntary trading system that will transition to a compliance-based framework in 2026, creating significant demand for carbon credits and removal technologies.

Marine Carbon Dioxide Removal (mCDR): A subset of CDR approaches that leverage ocean processes to remove atmospheric carbon dioxide, including ocean alkalinity enhancement, macroalgae cultivation, artificial upwelling/downwelling, and direct ocean carbon capture.

Measurement, Reporting and Verification (MRV): Protocols and methodologies used to quantify carbon removal or emissions reductions, ensure transparency, and validate claims. A critical component for establishing carbon credit integrity and market confidence.

Net-Zero Standard: A framework developed by the Science Based Targets initiative (SBTi) that defines criteria for corporate net-zero targets, including emissions reduction requirements and, increasingly, carbon removal considerations to address residual emissions.

Residual Emissions: Greenhouse gas emissions that remain after all technically and economically feasible reduction measures have been implemented. Under SBTi’s proposed framework, these emissions must be counterbalanced by carbon removal to achieve net-zero status.

Science Based Targets initiative (SBTi): A collaboration between CDP, the United Nations Global Compact, World Resources Institute, and the World Wide Fund for Nature that defines best practices in emissions reductions and net-zero targets aligned with climate science.

Voluntary Carbon Market (VCM): A decentralized network where carbon credits representing certified emissions reductions or removals are bought and sold outside of compliance markets, enabling organizations to voluntarily offset their carbon footprint.

Letters of Authorization: Documents issued by host countries that ensure carbon credits will not be counted toward national determined contributions under the Paris Agreement, making them eligible for use in schemes like CORSIA and preventing double-counting.

Key Questions & Answers

How is policy fragmentation affecting carbon market development?

Despite federal policy changes in countries like the US, subnational and international initiatives are advancing climate action through mechanisms like California’s SB-643 carbon removal mandate and Switzerland’s Net-Zero Timetables Directive. This creates a complex landscape of carbon policies across different jurisdictions.

What role will AI-induced energy demand play in carbon markets?

The Navigator report indicates that electricity demand is growing rapidly, with some regions projecting up to 53% greater load by 2037. This is driving interest in natural gas with CCS as a bridge solution offering firm capacity with up to 95% reduced emissions compared to conventional generation.

How are marine carbon dioxide removal technologies advancing?

Marine CDR approaches like ocean alkalinity enhancement have gigatonne-scale removal potential but face significant MRV challenges. The sector is advancing through testing, protocol development, and community engagement, with some buyers already procuring small amounts of mCDR.

What does SBTi’s Net-Zero Standard update propose for carbon strategy?

The proposed V2.0 draft introduces three approaches for addressing residual emissions before reaching net-zero: required near-term removal targets, optional removal targets with recognition, or flexible mechanisms combining value chain reductions and removals.

How might CORSIA affect carbon market dynamics in 2025?

With 129 participating countries requiring airlines to limit emissions to 85% of 2019 baselines, CORSIA is projected to generate 36-75 million tonnes of annual carbon credit demand by 2026 – a 20-40% increase over 2024 total VCM demand. However, supply constraints and authorisation issues create complex market dynamics.

What developments are occurring with Japan’s GX-ETS?

Japan has committed US$1 trillion over 10 years to decarbonisation, including CDR investments. Its GX-ETS will transition from voluntary to compliance-based in 2026 and may become Asia’s second-largest carbon market, creating significant demand for carbon credits and removal technologies.

How are carbon removal definitions evolving?

The Navigator report discusses emerging debates about what constitutes “true” carbon removal versus emissions reduction, with implications for market eligibility and investment flows. Rather than rigid categorisation, the focus is shifting toward scalable, durable carbon management systems.