Carbon markets are widely viewed as a cost-effective way to finance biodiversity conservation, particularly in regions such as Southeast Asia, but fundamental design flaws limit their ability to deliver durable ecological outcomes, according to a new study.
Nature-based carbon projects, which generate tradable credits by storing carbon or avoiding emissions in ecosystems, have expanded rapidly. The study, published in Nature Reviews Biodiversity, said that since 2023 more than 130 such projects covering over 20 million hectares have been registered and generated credits under Verra’s Verified Carbon Standard, although other estimates suggest the broader global market spans more than 3,000 nature-based carbon projects across over 20 registries.
The study said that more than 36 million carbon credits worth US$351 million from nature-based projects were transacted in voluntary markets in 2023. But market conditions have since become more fragile, with weak demand, political uncertainty and methodology delays weighing on Southeast Asia’s carbon market, even as policymakers and corporate buyers show increasing interest in higher-quality, more durable carbon removals.
Such projects are especially relevant in Southeast Asia, where deforestation pressures and funding gaps persist. Up to 114 million hectares of threatened forests in the region could be financially viable under carbon schemes, potentially protecting 25 million hectares of key biodiversity areas and supporting global conservation targets.
However, the study cautions that carbon markets are primarily designed to deliver climate benefits, not biodiversity outcomes, creating misalignments that limit their effectiveness as a conservation tool.
One key issue is “additionality” – the requirement that projects demonstrate emissions reductions beyond a business-as-usual scenario. While essential for carbon accounting, this framework can exclude ecologically important areas, such as intact forests with low deforestation risk, because they generate fewer measurable credits despite their high biodiversity value.
Similarly, efforts to manage “leakage” – where deforestation shifts outside project boundaries – focus on accounting for displaced emissions rather than preventing ecological damage. This allows habitat degradation to continue elsewhere, undermining conservation goals even as projects maintain carbon credit integrity.
The concept of “permanence” also presents challenges. Carbon projects typically operate over 40 to 100 years, with buffer mechanisms to offset future losses. But biodiversity operates on longer and more complex timescales, meaning species losses or habitat destruction cannot be compensated in the same way as carbon emissions.
The study also highlights unintended consequences. Some projects prioritise fast-growing monoculture plantations to maximise carbon uptake, reducing species diversity and weakening ecosystem resilience. In parallel, the commodification of nature can marginalise local communities, as high costs and technical requirements exclude smaller or community-led initiatives and risk triggering “green land grabs”.
Restrictions tied to carbon projects can also limit access to land and resources for Indigenous and forest-dependent communities, potentially undermining livelihoods and weakening long-term conservation support.
Despite these concerns, the study does not dismiss carbon markets entirely. Instead, it argues they should be integrated into broader frameworks that include regulation, community-led approaches and blended finance to ensure ecological integrity and equitable outcomes.
“Optimism around these projects’ utility for supporting conservation should be tempered,” the authors conclude, warning that overreliance on carbon markets risks failing to halt biodiversity loss without complementary policies and governance structures.
