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2026 Could Redefine Voluntary and Compliance Carbon Market Convergence, with Japan Leading the Way

The voluntary carbon market (VCM) enters 2026 with stronger foundations than a year ago. Despite political headwinds in 2025, investment, contracting, and integrity standards advanced.

According to Abatable’s 2026 market report, forward carbon credit contracts rose 58% year-on-year to $5.8 billion in 2025. This surge shows that buyers are locking in future supply rather than relying on spot purchases.

Funding for carbon credit projects reached $15.8 billion in 2025, even after a slowdown in engineered removal investments. Notably, nature-based funding hit a record $9 billion, signaling strong demand for high-integrity supply.

At the same time, compliance markets are reshaping demand patterns. CORSIA, the Carbon Offsetting and Reduction Scheme for International Aviation, is set to create an extra 78 million tonnes of demand by 2026. This is in addition to the 58 million tonnes needed for 2024 emissions.

But the most significant structural shift may come from Japan.

GX-ETS: From Voluntary Signal to Compliance Engine

Japan’s new GX-ETS (Green Transformation Emissions Trading Scheme) becomes mandatory in April 2026. The Asian country emits roughly 1 billion tonnes of CO₂ per year. The GX-ETS will initially cover 500–600 million tonnes annually, more than half of national emissions.

  • Between 300 and 400 companies will be regulated under the scheme.

Companies will be allowed to meet up to 10% of their compliance obligations using carbon credits. That creates potential demand of 50–60 million tonnes of credits per year.

Japan's emissions GX-ETS
Source: Abatable Report

For comparison, total voluntary carbon market retirements across major registries were 163 million tonnes in 2025. Japan alone could represent roughly one-third of that volume in compliance-driven demand.

This is not incremental; it is structural.

Convergence in Practice: J-Credits and JCM

Japan’s design shows how compliance and voluntary systems are merging. Companies can use two credit routes under GX-ETS:

  • J-Credits – Japan’s domestic carbon credit scheme
  • Joint Crediting Mechanism (JCM) – An Article 6.2 international crediting system with 29 partner countries

J-Credits cover nature-based solutions, renewable energy, and industrial efficiency. Engineered removals such as BECCS (bioenergy with carbon capture and storage) and DAC(direct air capture) are expected to be added in future phases.

The JCM focuses largely on avoidance projects, including renewable energy and efficiency measures. This structure links Japan’s domestic compliance market directly to international carbon trading under the Paris Agreement. It effectively blends compliance demand with voluntary market infrastructure.

Why This Matters for the VCM: From Optional Offsets to Structured Demand

The voluntary market has long relied on corporate net-zero commitments. Yet, that driver is evolving.

The Science Based Targets initiative (SBTi) remains the most influential corporate demand-side framework. Its new Corporate Net Zero Standard V2 draft introduces the concept of Ongoing Emissions Responsibility (OER). Companies may be recognized for addressing ongoing emissions using carbon credits.

This shifts the narrative. Credits are no longer seen only as optional compensation tools. They may become structured components of transition plans.

Meanwhile, integrity has become central.

The Integrity Council for the Voluntary Carbon Market (ICVCM) has approved 40 CCP methodologies across eight programs. CCP-approved methods might create 865 million more credits by 2035. That’s a ninefold rise from current levels.

Even so, CCP-eligible credits are projected to represent only 12.7% of cumulative voluntary supply by 2035. In this context, Japan’s GX-ETS creates guaranteed, regulated demand for credits that meet compliance rules.

This may increase price discipline and quality screening.

Asia Emerges as the Carbon Pricing Growth Hub

Japan is not acting alone. China is expanding its national ETS and moving toward absolute emissions caps. India plans to launch its Carbon Credit Trading Scheme in mid-2026.

Across Asia, carbon pricing systems now cover hundreds of millions of tonnes of emissions. Globally, carbon pricing instruments cover about 28% of global greenhouse gas emissions, according to the World Bank.

Share of global greenhouse gas emissions covered by ETSs, Carbon taxes or hybrid models over time (% of global GHG emissions)

Japan’s GX-ETS will become Asia’s second-largest carbon market.

This regional shift is important. Asia makes up a big part of global emissions and industrial output. When compliance systems in big economies allow some use of carbon credits, they connect voluntary methods to formal rules.

Several other Asian countries already run, or are building, carbon pricing systems.

South Korea operates the Korea Emissions Trading System (K-ETS), launched in 2015. It is one of the largest ETS programs in the region. The International Energy Agency reports that K-ETS includes nearly 80% of Korea’s domestic greenhouse gas emissions. It also targets around 800 of the country’s largest emitters.

Singapore uses a national carbon tax instead of an ETS. The National Environment Agency says Singapore raised its carbon tax to S$25 per tonne in 2024 and 2025, and it will rise to S$45 per tonne in 2026 and 2027. Starting in 2024, Singapore allowed companies to offset up to 5% of taxable emissions. They can use eligible international carbon credits for this.

Indonesia has moved into carbon trading through a formal exchange. The Indonesia Stock Exchange’s carbon platform, IDXCarbon, launched in September 2023, after the country’s financial regulator granted the operator a license. Indonesia’s wider system is expected to evolve into a hybrid model that links trading with a carbon tax-style backstop.

Vietnam has also set a clear roadmap. The International Carbon Action Partnership states that Vietnam updated its carbon market rules in June 2025. It also mandated a pilot ETS starting in August 2025. A fully functioning carbon market is expected by 2029.

These programs show how carbon markets are spreading across Asia through different policy designs. Some countries use cap-and-trade systems. Others use carbon taxes with limited credit use. These models can boost cross-border linkages over time. As Article 6 systems grow, buyers will look for credits that fit both voluntary and compliance needs.

Tightening Supply, Rising Quality Premiums

Supply dynamics are also shifting. Following the 2021 issuance peak, the 2025 supply continued to decline. The net surplus of credits fell to Abatable’s 2026 market report, down from 123 million in 2024.

Avoidance projects still dominate supply. Cookstoves, industrial efficiency, renewable energy, and REDD+ accounted for 222 million tonnes, or 83% of supply in 2025.

Abatable carbon market report 2026
Source: Abatable

Notably, forward pricing data show buyers paying premiums for higher-integrity methodologies, especially CCP-approved projects. Meanwhile, engineered removals remain scarce and expensive. Biochar leads in engineered supply offers. Other removal types mainly use forward contracts for trading.

As compliance markets such as GX-ETS and CORSIA expand, demand for eligible units may tighten supply and lift prices. For CORSIA alone, total First Phase demand is projected at 200–220 million tonnes.

CORSIA compliance requirements abatable
Source: Abatable

Adding potential GX-ETS demand of 50–60 million tonnes per year changes the scale of market expectations.

2026: A Structural Realignment, Compliance and VCM Begin to Merge

The convergence between compliance and voluntary markets is no longer theoretical. Japan’s GX-ETS demonstrates a model where:

  • A large national ETS covers over half of emissions
  • Companies can use carbon credits for 10% of compliance
  • Domestic and international credit systems integrate
  • Integrity standards increasingly define eligibility

This integration creates predictable demand. It may also reduce reputational risk for buyers. Credits used in compliance systems face higher scrutiny.

For voluntary buyers, this strengthens signals around quality and durability, while for project developers, it offers more stable forward revenue. For policymakers, it creates flexibility without abandoning emissions caps.

The VCM deployed 55 million tonnes of high-quality credits through Abatable’s platform alone, across more than 200 companies

In 2026, the market looks more institutional. Forward contracting is rising, integrity standards are tightening, and compliance systems are opening to credit use.

Japan’s GX-ETS may prove to be the clearest sign yet that carbon markets are moving toward structured integration. If 2025 was about resilience, 2026 may be about alignment. And Japan is leading that shift.

The post 2026 Could Redefine Voluntary and Compliance Carbon Market Convergence, with Japan Leading the Way appeared first on Carbon Credits.

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McKibben opts for a small-tent climate movement

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A few months ago I went to a climate change forum at the Center for Brooklyn History. The panel I attended, “Confronting Climate Change: Understanding Deniers,” featured the prominent climate activist, Bill McKibben.

Bill McKibben. Courtesy https://billmckibben.com/.

I was curious to hear McKibben’s take on climate change deniers. I don’t regard the true deniers as a big problem – they’re only 11-15% of our country, according to most polls. Rather, I wondered if McKibben would label as “climate deniers” people who agree that climate change is a significant problem but disagree with his framing and his proposed solutions. I have worked for decades on energy and climate matters as an energy lawyer. Now, more than ever, I believe that to address climate change we need to build a big tent.

In the Q&A I tested where McKibben is on this by asking if he would label as a climate denier someone who subscribes to the main tenets of climate change science yet holds that natural gas has a role to play as a bridge fuel. (Our exchange starts at 1:12:45 of the video.)

This could have been a chance for McKibben to make clear that such a view isn’t climate denialism, even if he feels it’s misguided. But he punted, saying “I don’t care whether they’re deniers or not.” For good measure, he threw in his long-standing refrain that swapping coal for natural gas makes climate change worse, despite coal’s far higher carbon content per unit of energy.

674-MW methane-powered generating station, Salem, MA.

As you can hear in the recording, McKibben’s claim that gas is worse than coal draws on the work of Cornell scientist Robert Howarth. Yet McKibben didn’t mention that Howarth’s work is controversial and disputed by many scientists. The crux of the dispute is whether methane’s impact on warming should be measured with a 20-year or 100-year time frame.

Methane is a relatively short-lived greenhouse gas, with a lifetime of around 10 years, versus the 100-year life applicable to carbon dioxide. But each ton of methane is far more potent while in the atmosphere, trapping roughly 100 times as much heat as a ton of CO2. These cross-cutting facts about atmospheric methane — shorter life but greater potency than CO2 — have resulted in two opposing camps: one insisting on a 20-year timeframe for greenhouse gas accounting, the other adhering to the established 100-year frame. This matters because with a 20-year timeframe, generating electricity with natural gas (which, chemically speaking, is essentially all methane) is more damaging to climate than coal-fired electricity.

McKibben blew past this dispute. To hear him at the Center for Brooklyn History, one would have no inkling that there’s an active disagreement over which timeframe to use, that there are staunch climate activists who favor the 100-year time frame, and that the Intergovernmental Panel on Climate Change  (IPCC) generally uses the 100-year timeframe.

McKibben’s latest (2025) book. Published by W.W. Norton & Company.

McKibben also insisted that a discussion about natural gas’s potential role in mitigating climate change as a replacement for coal is irrelevant because solar “is now our cheapest resource.” McKibben’s claim, of course, suffuses “Here Comes the Sun,” his 2025 book that extols solar power as the cheapest solution for all of our energy needs. But this too is questionable, because it’s based on cost comparisons between solar farms and natural gas power plants (or nuclear power plants) that fail to consider that electricity supply and delivery is a complex system of wires and plants rather than individual power plants. Based on his remarks, McKibben is choosing to ignore studies such as the comprehensive 2025 report from the Clean Air Task Force that concluded that plant-level cost comparison “is a good metric to track historical technology cost evolution [but] is not an appropriate tool to use in the context of long-term planning and policymaking for deep decarbonization.” And the task force is not alone in finding that when electricity is treated as a system, solar loses its place as the cheapest low-carbon resource.

The dogmatism McKibben displayed at the Brooklyn meeting was unfortunate. We’re in a time when efforts to combat climate change are in retreat. A unified front is required to turn the tide. Instead of doubling down on absolutist positions, activists like McKibben who seem convinced that the solution to climate change is all-renewables, end of discussion, should be seeking common ground with others who want climate action but believe that nuclear power and natural gas must also play a role.

NYC Climate March, Sept 17, 2023. Photo: C. Komanoff.

Climate change activists need to build a bigger tent, rather than call anyone who disagrees with their positions a climate change denier. It is striking that McKibben stuck to his guns after saying in the same talk that the most important goal for everyone right now is to help climate change realists win more House and Senate seats in this year’s midterms. As some have noted, an absolutist position on natural gas appears less likely to achieve that win and politicians are following that advice.

Will McKibben evolve? He has demonstrated that he knows how to build a national climate movement centered around issues like divestment. Given the current political situation, he should focus on building an even bigger tent by welcoming all of the 85% who believe that we need to address climate change but do not agree with his ideological positions.

Rich Miller is an energy lawyer who has worked for a variety of stakeholders and now gives walking tours in lower Manhattan on the history of electricity. 

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Rebranding ‘Balcony Solar’ as ‘Guerrilla Solar’ won’t lift its climate value.

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Image generated with Claude. Why have we juxtaposed a bicycle with balcony solar? Read on.

First it was Plug-In Solar. Then it was Balcony Solar. Now it’s Guerrilla Solar, at least according to Inside Climate News, which yesterday proclaimed that The ‘Guerrilla Solar’ Era Has Arrived.

“It,” of course, is Modular solar panels. They’re the hot new photovoltaic solution: cheap enough to buy at Home Depot, easy to hang or prop to catch maximum rays, and small enough to fit on a balcony (if you’ve got one) and plug into your “home grid.” But, alas, too meager a generator of electricity to be more than a bit player in decarbonizing most U.S. homes.

How do I know? I’ve done the math.

A standard, lower-end 220-watt balcony solar array will produce 337 kilowatt-hours a year, or 28 kWh a month averaged over the course of a year. That’s for a 220W unit measuring 3.5 feet by 3.5 feet. (220W x 1/1000 x 17.5% x 8760 hours per year = 337 kWh. Calculation assumes a 17.5% full-year capacity factor, which is arguably generous for New York, where I live. )

Our balcony solar mashup. Top: an install in Germany. Bottom: Home Depot advert.

A typical U.S. home consumes 10,500 kWh a year, or 28 to 29 kWh per day, says Solartech, drawing on U.S. Energy Information Administration data. That puts a home’s daily power needs on par with a balcony solar unit’s monthly output. In effect, once each month the balcony array gifts a homeowner or renter a bit more than day’s full complement of electricity. And earth’s atmosphere gets the same respite: a 3 percent reduction in carbon emissions caused by the home’s electricity usage.

(The 3 percent figure could also be calculated directly by dividing 337 kWh per year of solar production by 10,500 kWh per year to run the home. For bigger or smaller arrays, just prorate your assumed wattage by my 220W; for 440W, say, double my figures.)

Balcony Solar metrics

Why write about balcony solar if it’s so inconsequential? CTC’s mission includes puncturing would-be climate balloons before they ascend too far. In the same vein, we practice quantification to make clear what does and doesn’t move the climate needle. (More on that further below.)

The best way to depict balcony solar’s climate value is to express it in terms of tangible metrics. We’ve selected two. Both assume the basic, lower-end PV array I assumed at the top: a 3.5 foot-square array whose peak output is 220 watts.

1. It would take 50 million 220W balcony solar units (bsu’s) to restore the climate benefit we destroyed in 2020-2021 when we shut the high-performing Indian Point nuclear power plant 32 miles from Midtown Manhattan.

2. A single person cutting back their driving by a mile a day would provide the same climate benefit over the course of a year as a single 220W bsu.

(Calculations in sidebar. Now you know why we led with images of an urban dweller as cyclist and balcony solar user.)

Yes, it’s dense — as befits a sidebar. The numbers tell a story. Follow the color co-ordination.

Ponder that: It would take fifty million smallish bsu’s to level up to the fossil fuel carbon emissions that Indian Point was keeping at bay by supplying the New York City area year in and year out with abundant carbon-free power. Deploying that many balcony solar units would entail 10 bsu’s for each of the 5 million households in the MTA’s service territory. (The Metropolitan Transportation Authority provides subway, bus and commuter rail transit in the five boroughs and seven suburban counties.) Or, if those same households upgraded to 1100-watt bsu’s, collectively they would still make up only half of the lost Indian Point power.

The second comparison, involving driving, is perhaps trickier to grasp but more interesting, since it relates to people’s behavior. Living differently isn’t part of public discourse, at least not in the USA, and especially when what’s being served up is using less. But “reducing,” as we might call it (remember “Reduce, Reuse, Recycle”? or, “Insulate, then Insolate”?) is just as potent for cutting emissions as switching to renewables — even more so when the reducing means driving less, considering the multitude of benefits that accrue from diminishing cars’ imprints on our communities. Still, staying on topic: driving just one fewer mile per day brings about the same shrinkage in carbon emissions as deploying one 220W solar array.

What Balcony Solar boosters are really saying

To be fair, our friends at Inside Climate News and, yes, The New York Times appear to be trying to modulate their balcony solar enthusiasm.

ICN‘s Dan Gearino, whom we cited up front, said he looked to Germany, the birthplace of balcony solar, to see if the units made sense for U.S. households. His takeaway: “It may make more sense financially to spend the cost of plug-in solar on insulation, air sealing or other basic measures to reduce energy use.” Hooray: insulate before you insolate.

Gearino helpfully interviewed renewables guru (and U.S. emigré) Craig Morris, who currently heads Germany’s plug-in solar trade association, Bundesverband Steckersolar. To Morris, balcony solar’s main advantages are that it provides power without taking up land, and that it affords people a way to “become participants in the transition to clean energy.” Behold, guerrilla solar. That, in turn, bolsters “the political consensus that supports the transition.” But Morris also made clear that widespread adoption of plug-in solar would only meet “about 2 percent of Germany’s electricity demand.”

Morris’s “about 2 percent” feels right for Germany. But not for the U.S., where widespread adoption of virtually any individual carbon alternative seems forever out of reach, and where the energy pie is so much larger — think giant fridges, freezers for beer, steroidal homes bursting with piles of powered toys, not to mention industrial and institutional electricity use that Morris correctly excluded from his figure.

Don’t forget to micro-dose. NYT headline + image for David Wallace-Wells’ guest essay (see text). Image by Rui Pu.

Both Gearino and Morris seem more measured than climate journalist Robinson Meyer, founding editor of Heatmap and frequent contributor to The Times, where he wrote about balcony solar in mid-June.

“New zero-carbon power kits will allow Americans to make their own energy choices,” declares the callout to the print version of Meyer’s NYT guest essay, The Tiny Solar Panel That Could Change America. (The even more expansive print headline invites us to “Forget Roofs. Backyard Solar Is the Next Frontier.”)

Wallace-Wells is of two minds. He calls balcony solar “a small way that apartment- and condo-dwelling Americans can take ownership of their energy choices and cut down their pollution on the margins.” No quarrel there, thanks to his qualifiers “small” and “on the margins.” Earlier, though, he opines that balcony solar units “have the potential to change how Americans understand and consume energy,” But read further and you’ll again see Wallace-Wells cautioning that “Balcony solar will play one small role in [the] drama” of transiting to the new world of clean, abundant energy.

Any such caveats are welcome these days, amid widespread solar hoopla. Still, it doesn’t seem to be in Wallace-Wells’ toolkit — or that of Inside Climate News and other mainstream climate journalists — to tutor their audiences as to the  true limits of balcony solar and other panaceas. Just like it wasn’t in their field of vision a decade ago to lay out the true stakes of shutting Indian Point as Riverkeeper was singing its siren song.

What’s Next for NY Balcony Solar

Meantime, as Canary Media reported recently (and helpfully), New Yorkers concerned with climate and affordability are waiting for NY Gov. Kathy Hochul to sign the recently passed SUNNY (Solar Up Now New York) Act legalizing balcony and other plug-in solar. It would be head-spinning (and politically suicidal) if she didn’t, given near-universal support ranging from Con Edison to DSA Assembly Member Emily Gallagher, who told Canary Media, “This is the most popular bill I’ve [ever] worked on.”

My guess is that Hochul is waiting for the right moment, and perhaps the right “package,” that can advance and not undercut her push to launch five large new nuclear power plants around the state — one to be built by the public New York Power Authority, the others to be constructed and operated privately. A little bit of math, a la what we offered here a la Indian Point, might help her out.

The governor also must manage the veritable hot potato of her deferred implementation of the landmark 2019 Community Leadership and Climate Protection Act. She might do well to consider jettisoning the act’s unwieldy cap-and-invest centerpiece in favor of a straight-up carbon tax (with the revenues distributed pro rata to the state’s households) in its place. That, far more than balcony (or guerrilla) solar, could blow open the door to the “innovations and technologies we cannot yet imagine” that Wallace-Wells fantasized about in his Times essay.

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The new SBTi Corporate Net-Zero Standard: what it means for business

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On 11 June 2026, the Science Based Targets initiative (SBTi) published the most substantial revision of its flagship corporate framework since its introduction. The SBTi Corporate Net-Zero Standard Version 2.0 takes effect on 1 February 2027 and reshapes the way companies approach their net-zero targets.

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