The government’s recent announcement of support for voluntary carbon and nature markets effectively offers a “warrant of fitness” to signal which markets can be trusted, without directly regulating them.
The aim is straightforward. By giving investors, landowners and developers confidence, the government hopes to unlock private finance for projects that reduce emissions or restore ecosystems.
As Associate Minister for the Environment Andrew Hoggard put it:
The pressures on nature and climate are bigger than the public purse.
But voluntary markets are based on self-imposed targets and governed by a patchwork of organisations. The credibility of climate claims in voluntary carbon markets has already been repeatedly challenged internationally.
This raises the deeper question of whether the government can create a credible framework by relying on externally developed standards in a lightly regulated system, or whether it risks outsourcing key decisions about environmental integrity.
How voluntary markets work
Carbon markets allow organisations to buy and sell “credits” representing reductions or removals of greenhouse gas emissions. In compliance markets – such as New Zealand’s Emissions Trading Scheme – participation is required by law, and governments set the rules.
Voluntary carbon markets are different. In these markets, businesses and individuals choose to buy credits to meet self-imposed climate targets or demonstrate environmental responsibility.
They are not governed by a single regulator. Instead, various independent organisations verify projects and issue credits, often following standards set by international bodies.
Voluntary nature markets work in a similar way but extend beyond carbon, covering biodiversity, water quality and ecosystem restoration.
This decentralised structure is both a strength and a weakness. It allows innovation and experimentation, but it also means that credibility depends heavily on the quality and consistency of external standards.
The credibility problem
Voluntary markets can channel finance into projects that fall outside regulated systems such as emissions trading schemes. But internationally, they have been dogged by controversy.
The main issue is credibility. For a carbon credit to have real climate value, the emissions reductions it represents must be real, additional and permanent. In practice, many credits fall short of these criteria.
Concerns have been documented widely. They include weak or inconsistent standards, limited transparency, difficulties verifying whether projects would have happened anyway, risks that stored carbon may later be released, and the possibility of the same reductions being counted more than once.
These problems are not just technical. Some analyses suggest a significant share of offsets used by companies may not deliver genuine emissions reductions.
Even where credits are of high quality, they can be misused to justify claims of “carbon neutrality” without any meaningful reduction in the use of fossil fuels.
The result has been a persistent gap between the promise of voluntary markets and their performance. Investor confidence has been shaken and concerns about greenwashing have grown.
A ‘light-touch’ solution
The government’s response is not to regulate the market directly, but to endorse schemes it considers credible.
Three international initiatives – the Integrity Council for the Voluntary Carbon Market, the Coalition to Grow Carbon Markets and the Paris Agreement’s own Crediting Mechanism – have received approval.
However, endorsement does not eliminate the underlying risks.
These initiatives operate within a system that remains fragmented and evolving. Their effectiveness depends on how consistently standards are applied, how rigorously projects are assessed and how transparently information is shared.
By relying on these schemes, New Zealand is effectively tying its approach to international governance processes over which it has limited control. Endorsement may signal quality, but it also outsources key judgements about environmental integrity.
It is a light-touch approach in a context where the risks are already well established.
Beyond trees
Despite these concerns, voluntary markets could offer important opportunities, particularly for diversifying New Zealand’s approach to carbon removal.
At present, tree planting dominates the country’s removal strategy. But there is growing interest in alternatives such as wetland and peatland restoration, soil carbon, coastal “blue carbon” ecosystems and emerging technologies such as direct air capture.
Many of these approaches are not yet supported by compliance markets. Voluntary markets could provide early-stage funding, helping promising ideas get off the ground.
In this sense, a light-touch approach may encourage innovation.
But here, too, the risks are not insignificant. Measuring and verifying carbon removals in soils, oceans or engineered systems is often more complex and uncertain than measuring emissions reductions. This makes these areas especially vulnerable to weak standards and low-quality credits.
The same flexibility that enables innovation also increases the risk of poor environmental outcomes, particularly in areas where robust measurement is hardest.
What role should voluntary markets play?
The international evidence suggests voluntary carbon and nature markets can play a useful but limited role in climate policy.
They can help mobilise private finance, support conservation and restoration projects and provide early funding for emerging technologies. But they are not a substitute for direct emissions reductions or strong domestic regulation.
For New Zealand, this implies a need for clear boundaries. Voluntary markets should complement, not undermine, the emissions trading scheme and other core climate policies. That means ensuring strict rules around how credits can be used and what claims can be made.
Without guardrails, voluntary markets could expand faster than the governance needed to ensure they deliver genuine climate benefits.
The government’s strategy may succeed in attracting investment. But its long-term credibility will depend on whether that investment translates into real, measurable and lasting environmental gains.
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