Sebastien Cross (BeZero Carbon)  ·  Duncan van Bergen (Calyx Global)  ·  Alvin Lim (Climate Bridge International, VCM+ Fellow)

Carbon credit ratings have moved from the margins to the mainstream in just four years. In this exchange, co-founders of two carbon credit ratings agencies and a VCM+ Fellow behind a leading Asia-based carbon finance company debate what that shift means — for developers, for financiers, for regulators, and for climate action.

I. The changing role of carbon credit ratings

Sebastien: It's remarkable to look back. Four years ago, carbon credit ratings weren't part of the conversation in voluntary or compliance carbon markets. Today, they've emerged as a foundational form of market infrastructure, shaping how risk and performance are assessed. We are seeing ratings influence everything from pricing and purchasing decisions to the way projects are actually designed from the ground up.

Duncan: Ratings have also corrected an old system where many buyers simply didn't have the information needed to make integrity a part of their decisions. In the past, false heuristics about which types of credit were “better” were key drivers of price discovery. Now, we see clearer price signals where higher quality correlates with higher prices. Developers and investors are responding to what the market actually values, creating a “race to the top.”

Alvin: A race to the top in the voluntary market, certainly. But the track looks very different once you cross into compliance systems and government procurement for NDCs. In voluntary markets, ratings can influence buyer choice; in compliance markets, decisions are driven primarily by regulatory eligibility and cost; and under Article 6 for NDCs, governments often weigh broader strategic and economic considerations. 

Duncan: I agree that eligibility becomes a key consideration in compliance markets. That said, we do see a desire from compliance-subject companies to obtain independent views on the integrity of credits they are considering buying or using, i.e. buyers are still seeking a role for ratings. 

II. Guidance or gatekeeping?

Alvin: That’s an important distinction. Many corporates already rely on supply-side integrity frameworks such as the ICVCM Core Carbon Principles to assess crediting programmes and methodologies. Ratings add another layer by providing project-level insights, which is why I see them as a valuable complementary tool rather than a replacement for existing integrity frameworks. But we should also acknowledge that rating approaches are still evolving and are not yet standardized. Ratings are evidence-based expert assessments whose interpretation may differ across agencies. They should therefore be understood as informed opinions rather than definitive measures of project quality. 

Duncan: A significant portion of ratings already point in broadly similar directions. Where they diverge, it's usually one of two things: differences in how agencies assess the underlying risk drivers — which I expect will narrow over time and are open to scrutiny — or differences in the information used, which is precisely why having more than one agency in the market is valuable.

Sebastien: I think both of these points are true. Ratings are converging, but the differences that remain aren’t a weakness given there is no definitive ‘right answer’ to judge against. Different approaches reflect different dimensions of risk. This can give buyers and regulators a more complete picture than any single lens on its own, provided it's delivered in a transparent and independent way. 

Alvin: The question is what happens when you try to formalise that role.  If we start hardwiring ratings into compliance systems today, we risk turning a small number of rating providers into gatekeepers before there is sufficient oversight, transparency and accountability around how ratings are produced. Today, there are no globally accepted accreditation standards for carbon rating agencies and limited clarity around governance and conflict management.

Sebastien: Greater oversight is appropriate, and it’s coming. Europe is implementing regulation of ESG ratings agencies this year and BeZero has already submitted its notification to ESMA, with our formal application due by November. We expect our ratings to be regulated and fully accountable to ESMA by early 2027. But consider what happens without ratings: once credit types are deemed eligible, buyers optimize for price, which pushes demand toward the cheapest segment of eligible supply. That’s precisely the situation governments want to avoid, because it concentrates risk and can undermine market credibility.

Duncan: I agree the market may not be ready for ratings as a mandatory gate just yet. The real opportunity today isn’t in the score — it’s in the research behind it. Regulators can use the experience and knowledge raters have developed to deepen their own understanding of what makes a credit genuinely high-quality.

Alvin: So you’re suggesting the insight is ready, even if the gate isn’t?

Duncan: It’s about using the intellectual property of ratings to inform regulatory guardrails, rather than outsourcing decisions to private entities. That said, I do believe a gate is ultimately useful. Integrity has to be built into compliance systems — it would be a shameful, and ultimately self-defeating waste not to leverage the expensive lessons learned about quality in the voluntary market over the past thirty years.

Alvin:  I appreciate the experience and knowledge that rating agencies can bring in helping regulators think through these issues upstream, and I agree that project-level insights can help design stronger eligibility frameworks from the outset. But I would still be hesitant to use a letter rating as a gate until there is greater regulatory oversight. Otherwise, developers may naturally gravitate towards raters whose interpretations are more favourable, and this simply perpetuates the problem that you are proposing for rating agencies to solve.

Sebastien: It’s also important to highlight that we are not proposing a new system here; credit ratings have been a key tool for regulators to dictate the rules of financial markets for many years now. Capital requirements for banks, pension funds, insurance companies are all based on the risk assessment of independent providers. It would be very expensive and inefficient for the government to assess the risks of each instrument itself, or indeed each carbon credit. 

III. The cost of credibility

Alvin: There’s also the practical issue of cost. Developers already face major hurdles in securing financing for projects. In voluntary markets, buyers may have a clearer reason to pay for ratings as part of their own due diligence. But in compliance markets, where credits already go through regulatory eligibility checks, any rating requirement needs to be designed carefully so that it can meaningfully be applied for the compliance market’s context.

Sebastien: Our experience suggests having independent risk assessments available to the market unlocks more capital, not less. Of course these assessments aren’t free, but the cost of weak integrity can be far higher. If projects fail, it can have significant financial and climate consequences, as well as direct financial impact on communities involved in the projects. Without credible assessment, markets risk losing trust altogether.

Duncan: I think your point is important, Alvin. Regardless of whether buyers or projects pay for an independent review and rating, it adds to the system's costs. And that inherently favors large projects and large developers. My expectation is that an increasingly quality-conscious market will recognize the value of independent ratings and be willing to pay for them. I also think efficiency improvements can help bring down these costs.

Alvin: It’s in everyone’s interest to build a resilient market. Over time, if ratings become more standardized and embedded in market infrastructure, adoption costs could fall and the value of the signal could rise. But from a developer and financier’s perspective, clear and predictable signals on what constitutes a high-quality project are critical. Ratings can support that objective, but only if the criteria are sufficiently transparent and stable to inform project design and investment decisions upfront. 

Sebastien: That’s fair, but even if adoption costs fall, that’s just one side of the equation. The other side is price — whether the market is actually structured to reward high-integrity supply.

Alvin: And today that’s still uneven. In many cases, those additional costs aren’t consistently reflected in price, especially in compliance markets where decisions are driven primarily by regulatory eligibility and cost.

Sebastien: Ratings already play a role in enabling that differentiation — higher ratings are increasingly correlated to higher prices. The issue is that the signal isn’t yet strong or consistent enough, particularly in compliance settings.

Duncan: What ratings, or the logic and frameworks behind ratings, introduce is a second layer of differentiation. Without it, the market can end up relying heavily on the lowest-cost segments of supply — which, as we’ve seen in the past, creates structural vulnerabilities when those segments come under scrutiny.

IV. What happens when the facts change?

Alvin: One of the hardest questions is what happens when new information changes our understanding of a project. Carbon projects aren’t static — performance data accumulates, monitoring improves, and market expectations around risk can shift. A credible system needs to reflect new evidence, but it also has to do so in a way that preserves investment certainty. 

Duncan: I don't fully agree. The core risks don't change much — the science sharpens our view of them, but the parameters hold. What shifts more often are the methodologies projects use, which reset the bar for verification. Ratings assess the outcome, not compliance with the methodology.

Alvin: I understand that, but from a developer and financing perspective, certainty matters. Projects take years to finance and build. If the goalposts move too much after issuance, you create real investment risk, especially for projects operating on already razor-thin margins, which may become unviable overnight.

Sebastien: I don’t think this is about moving the goalposts. Many projects are live and require the ongoing storage of carbon to perform against the credits they have issued. We have always made our ratings “live and dynamic” to reflect this reality. Hence our ratings watch process. There’s no such thing as “right first time” when it comes to assessing a living 40-year biome. Conditions change. Ratings act as an independent monitoring service that allows buyers and other stakeholders to assess performance against that commitment. This is one of the reasons the debate around permanence is so polarised in the market - prior to ratings being available, it was very hard to track the performance of projects against their permanence commitments.  For agencies delivering these assessments, I think emerging codes of conduct and regulatory frameworks are beginning to set important expectations and benchmarks around governance, transparency and oversight.

Duncan: Those developments will help bring more consistency and predictability, without removing the ability to reflect new evidence as it emerges.

Alvin: And in compliance markets, especially, there may need to be some grandfathering to protect existing investments. Projects approved under a compliance framework should retain regulatory certainty for the duration of the crediting period, while still allowing standards to evolve for future projects.

V. The buyer’s bottom line

Alvin: We have to be realistic about the buyer’s motivation in a compliance market. Once a regulator sets the eligibility criteria, a company’s primary incentive is to meet that requirement at the lowest possible cost. They aren’t looking to pay a premium for a higher rating if the lower-rated credit already satisfies their tax liability.

Duncan: I understand the cost optimization imperative, but I think there is also a “duty of care” at play here. If a company buys credits to meet a regulatory obligation and those credits have zero, or heavily impaired, climate efficacy, that isn’t just a reputational risk — it’s a failure of diligence and risk management. Relying solely on the regulatory floor can be a dangerous gamble if that floor shifts.

Sebastien: Ratings provide the project-level depth that broad regulatory frameworks often miss. A regulator might approve a whole methodology, but the performance of individual projects within that methodology can vary wildly. Even if the price is say $10 per credit, variation in quality may mean buyers have a choice between a B, BB, or BBB rated credit. Why would they buy the B first knowing others exist at a higher quality and same price? A buyer who ignores that variance is essentially flying blind, regardless of whether they are in a voluntary or compliance market. We are seeing evidence of buyers taking account of this variation in project level risk in current compliance markets such as CORSIA. 

Alvin: But that assumes the buyer has the capacity or the mandate to look further. In many compliance jurisdictions, project eligibility is pre-approved by a joint committee. If the state says it’s good, the company’s fiduciary duty is arguably to minimise expenses for the shareholder — not to second-guess the regulator.

Duncan: That’s why the accumulated experience of ratings can be an important input for regulators. If we can embed these high-integrity drivers into the compliance rules from the start, we align the buyer’s cost optimization with the planet’s need for actual carbon removal.

Alvin: I agree that high-integrity drivers should be embedded into compliance rules, but that’s quite different from using a letter rating itself as the gatekeeper.

VI. The path forward: building trust without losing control

Duncan: The key is that ratings have to complement, not override, regulatory judgment. They’re not a substitute for public authority — they’re a way of bringing clearer information into the system.

Alvin: Sure, ratings can strengthen integrity, but they shouldn’t become parallel rulebooks. In international carbon markets, particularly under Article 6, carbon credits are not simply environmental instruments. They are also channels for capital flows between countries and often sit alongside broader objectives such as trade diplomacy, industrial cooperation, technology transfer and economic development. Ratings can provide valuable insight into project-level quality, but they are not designed to capture these wider strategic considerations that governments often weigh when making procurement decisions.

Sebastien: That’s right - and they’re not meant to. Ratings don’t replace those judgments. They simply give regulators a way to understand credit performance and express how much underperformance they’re willing to tolerate, without having to build the entire analytical infrastructure themselves.

Alvin: I can see the value in that. Once a rating becomes the thing everyone points to, however, it does start to feel like a decision is being made elsewhere. 

Sebastien: Only if we treat ratings as verdicts instead of inputs. They’re not meant to be a single switch — yes or no, in or out. They’re meant to surface uncertainty that’s already there.

Duncan: And that democratization matters — ratings give buyers, investors and regulators access to independent quality signals that previously only the most sophisticated market participants could generate for themselves.

Alvin: I can accept that — as long as we don’t end up in a world where a handful of private actors become the de facto arbiters of what counts. Ultimately, I think the most durable solution is not to regulate through ratings, but to learn from them as complementary tools. If the core drivers of project quality are broadly understood across rating providers, regulators can progressively embed those criteria directly into eligibility frameworks. That preserves regulatory authority while still benefiting from the analytical work that rating agencies have undertaken.

Duncan: The goal isn’t to create a private authority. It’s to build a market where better information supports better rules, and better rules support better outcomes. If ratings help the market mature, they become part of the scaffolding — not the final word, but a clear way forward.

Alvin: To be clear, greater confidence in the integrity and performance of project-based credits is a good thing. It can give regulators more confidence to integrate project-based credits into compliance frameworks, enabling the use of market-based mechanisms alongside carbon taxes and emissions trading systems, while channeling capital towards climate mitigation, adaptation and broader sustainable development outcomes. The challenge is ensuring that compliance systems remain resilient over the long term. If carbon ratings are to play a role, regulators need confidence that the system can continue to function even as rating approaches change materially, providers consolidate, transparency remains limited, or individual raters exit the market. 

For me, the path forward is relatively straightforward. Use ratings as a complementary tool, not a gatekeeper. Embed core project quality criteria, not entire ratings, into compliance frameworks. And preserve regulatory authority so markets stay resilient even as rating methodologies and providers evolve. Ratings are only as useful as the regulatory system they inform, so the next phase will require clearer standards, stronger oversight, and some humility about what these tools can and can’t do. The future of carbon ratings is not to replace regulatory judgment, but to help inform better regulation.