4 min. read
Last updated Mar 11, 2025
Key takeaways
VCM resilience: The voluntary carbon market (VCM) remains independent of government mandates, with bipartisan support for key climate incentives like the 45Q carbon sequestration tax credit ensuring continued investment.
Federal policy uncertainty: The Trump Administration's climate retreat raises concerns, but the voluntary nature of the VCM and congressional support for key provisions limit major disruptions. Therefore, companies with climate commitments should consider this time as an opportunity to maximize climate impact in the midst of government rollbacks.
State-level action: States like California, Massachusetts, and Washington are strengthening carbon market regulations and climate disclosure requirements, counteracting federal rollbacks.
Just weeks into its tenure, the second Trump Administration has taken significant steps to withdraw from global climate cooperation and roll back climate-related policies and legislation. For many in the private sector, this has raised questions about how changing US federal policy may impact the VCM.
The relationship between the government and the VCM
The voluntary carbon market, by its nature, is not under the control of or run by any government and is, in many ways, insulated from the political winds. Companies can opt into or out of the market to the degree they see fit based on their business objectives. While governments may provide guidance, best practices, or limited regulation on certain aspects of the VCM, directing the operation of the VCM is not a core function of government. Even with recent political changes, the VCM remains purely voluntary, and the overall trend is toward incentives and initiatives that support its growth. Where governments and the VCM intersect, it is largely to spur investment, encourage climate emissions disclosure, and support nascent green technology.
The Trump Administration, Congress, and the VCM
The Inflation Reduction Act (IRA) is the most important law connected to the VCM in that it provides tax credits for carbon reduction and removal projects in the US. The IRA introduced new tax credits to the US tax code for Clean Hydrogen (45V), Clean Energy Production (45Y) and Clean Fuel Production (45Z). It also expanded on the 45Q tax credit to include direct air capture (DAC) projects to be eligible for up to $130 per ton of CO2 removed via the 45Q tax credit. However, the timeline—and congressional appetite—for any action to repeal some or all of the legislation remains unclear. Regardless of whether Congress considers changes to the IRA at the request of the Trump Administration, many key provisions appear resilient against executive and legislative action. The 45Q (Carbon Sequestration) tax credit, which is critical to scaling up direct air capture, among other producer-facing provisions, have strong bipartisan support and appear durable. In addition, efforts to rescind IRA funding for carbon removal initiatives may not survive legal scrutiny, and courts have already halted some of President Trump's executive actions.
During both the current and previous Trump Administration, efforts to undermine confidence in the VCM ultimately do not directly impact voluntary climate action. On January 20, 2025, President Trump issued an executive order to withdraw the US from the UN Paris Agreement. This process, which takes at least a year to go into effect, was successfully completed during the past Trump Administration and subsequently reversed by President Biden. On January 30, 2025, Sen. John Kennedy (R-La.) introduced a joint resolution to prevent the CFTC guidance on voluntary carbon credits from having any effect or force. The CFTC's final guidance was already not considered a formal regulation, but rather a guiding framework for exchanges to follow. Therefore, even if this joint resolution were to go into effect, it would not penalize or prevent companies from procuring carbon credits voluntarily utilizing this guidance.
The role of state-level policy for the VCM
States are likely to engage in greater climate action as a countervailing force against shifting federal policy, just as they did during the first Trump Administration. For example, immediately following the 2024 election, California called a special session to counter the actions of the Trump Administration and reinforce core priorities, including climate change. This was not the first time California has taken far-reaching action on climate.
During the 2023 session of the California Legislature, several bills, collectively referred to as the Climate Accountability Package, were introduced to address a range of climate issues, including disclosure related to the voluntary carbon market. In late 2023, Governor Newsom signed some of these bills into law, including AB 1305, SB 253, and SB 261, which push stronger climate disclosure requirements, including details about the voluntary use of carbon credits. Bills like SB 308, which focused on carbon removal, were vetoed but will likely be reintroduced as part of California's overall approach to shoring up its climate policies. All the policies in this package apply to companies that do business in California, an intentionally vague jurisdictional scope intended to maximize climate impact. Collectively, these policies aim to increase transparency for customers, investors, and the public regarding corporate climate action.
A dozen other states, including Maine, Hawaii, Massachusetts, Washington, Georgia, and Nevada are following California's lead and are considering bills related to carbon credits and markets. Many are considering ways to spur investment in carbon removal technologies, especially as they see the benefits of the IRA in terms of creating new jobs and catalyzing new industries.
As the US pulls back, the world leans in
While the US may be stepping back from national efforts to engage in climate action, the European Union (EU) maintains its long-term climate commitments with regulations and policies that support the maturation of the voluntary carbon market, as well as climate objectives more broadly. However, due to a conservative shift in the EU political makeup and threats of tariffs abroad, the EU has made some modifications to some of its most prominent decarbonization mechanisms.
The Carbon Border Adjustment Mechanism (CBAM), introduced in 2021, imposes carbon taxes on imports, encouraging companies to invest in low-carbon solutions to mitigate costs. A recently introduced amendment would delay certain aspects of the implementation timeline of CBAM and increase exemptions for certain importers, CBAM will continue to cover "more than 99% of embedded emissions" of imports.
European Emissions Trading Scheme (ETS) advances carbon removal standards in an effort to significantly shape private sector VCM investments.
The Sustainable Finance Disclosure Regulation (SFDR), which went into force in January 2023, mandates sustainability investment disclosures, enhancing transparency and discouraging greenwashing. The scope of impacted companies was reduced by 80% due to an omnibus policy that was adopted in February 2025, which now limits the reporting requirement to companies with more than 1,000 employees and either more than €50M in turnover or a balance sheet of more than €25M.
At the same time, other countries like Brazil, Japan, and South Korea are increasingly stepping up their efforts to mitigate climate change at the national and global levels, with policies and regulations aimed at strengthening carbon regulations and improving access to high-quality carbon dioxide removal.
In December 2024, South Korea announced a global voluntary carbon market initiative with the UNFCCC, aligning with the Paris Agreement.
Other nations, including India and Switzerland, are strengthening carbon emissions regulations, underscoring a growing global focus on corporate climate responsibility.
Brazil's Resolution No. 59 (RCVM 59) requires ESG disclosures from publicly traded companies, reinforcing accountability in voluntary carbon credits.
Japan's Green Transformation (GX) Policy includes a carbon levy on fossil fuel imports, set to begin in 2028, and rivals the scale of climate investment in the IRA.
The future of the VCM amid federal uncertainty
The VCM remains resilient to changes in the US political landscape due to market demand, state leadership, and international standardization efforts. The US withdrawing from the Paris Agreement, and more broadly from all international climate efforts, during this administration is likely to significantly set back efforts to counter climate change and its consequences. However, this withdrawal leaves space for other countries to step in as leaders on the climate transition, both in terms of technological advancement and policy development. With global leaders like Brazil, Japan, and South Korea advancing carbon policies and the EU reinforcing its regulatory framework, businesses must stay informed and adapt to the evolving carbon market landscape.
