The conversation around carbon management is in constant fluctuation, driven by policy decisions on both sides of the Atlantic. At a recent illuminem Exchange webinar titled “The Future of Carbon Management,” a panel of experts confronted the complexities of carbon markets and discussed what lies ahead for the U.S. and Europe. Moderated by Carbon Pulse journalist Bryony Collins, the panel featured Alexia Kelly, Director of High Tide Foundation; Sebastian Manhart, Senior Policy Advisor at Carbonfuture; environmental scientist of Carbony, Thomas Rinder; and Eve Tamme, Director of Climate Principles.

Carbon pricing is a critical, evolving tool

Carbon pricing, it seems, is at a crossroads. We see voluntary carbon markets grow, but fragmented regulations remain a challenge. In the United States, the Inflation Reduction Act (IRA), praised as a transformative climate policy, has gone some way toward incentivising carbon reductions by offering lucrative tax credits for businesses that cut and offset emissions. 

Meanwhile, Europe’s Emissions Trading System (ETS), the longest-running carbon market, is considered by some to be the gold standard for regulatory-driven carbon pricing. Yet Europe’s market is hampered by volatility, competing standards in the voluntary carbon market (VCM), and the innate complexity of coordinating policy across 27 member states.

As Eve Tamme noted, “only 18% of the world’s emissions fall under emissions trading systems,” pointing out a substantial gap for policymakers to bridge if carbon markets are to make a meaningful impact. She emphasised the need for “predictable pricing and aligned standards” to attract long-term private investment, which she and Manhart identified as crucial. Without a stable, consistent market structure, the risk remains that carbon markets will stay fragmented, limiting their potential to combat climate change.

Investing in technology is more than a matter of policy

Policy alone won’t fix our problems. The real muscle in carbon removal lies in both nature and technological advances. Technologies such as direct air capture (DAC), biochar, and enhanced weathering offer concrete means to sequester carbon. But as Thomas Rinder and Sebastian Manhart explained, scaling these technologies requires substantial and varied funding streams, as well as rigorous monitoring. “Enhanced weathering, for example, holds immense potential,” Rinder observed, describing how it is relatively cost-effective and adaptable in Europe, offering distinct co-benefits in agriculture. But he also noted that high costs tied to monitoring and verification remain challenges.

Sebastian Manhart, whose work centres on building “trustworthy carbon removal,” emphasised the necessity of stringent monitoring and verification processes to avoid what he termed “greenwashing.” Voluntary markets, he warned, are particularly vulnerable to companies that claim more than they deliver. “We need rigorous standards,” Manhart said, adding that without these, the credibility of carbon markets will continue to be questioned.

Kelly made an important observation of the U.S., EU, and UK receiving the vast majority of investment dollars in the carbon startup space. Startups in the global South face a “perennial challenge” in accessing capital, especially venture capital, which is typically both high-risk and high-return. She noted a peculiar mix in this sector, where funding sources are either high-risk venture capital or “patient, long-term” government grants. Bridging these funding needs over a project's lifecycle is essential.

Kelly further pointed out that the global South has cost-effective opportunities to scale natural carbon removal systems, thanks to lower costs for land and labour. There is an urgent need to “build incentives for international capital flows” into these regions, which hold natural advantages for scaling carbon removal.

A two-front strategy in the U.S.

In the United States, there’s a pressing need to balance immediate emissions reductions with long-term strategies. Alexia Kelly described this dual approach as essential. The country, she argued, must meet near-term targets by 2030 while laying the groundwork for scalable carbon removal by mid-century. The IRA reflects this: while it incentivises immediate action, it also provides funding for the research and development of technologies necessary for scaling carbon removal in the coming decades. Kelly was succinct: “Pathways for these technologies must be built now,” she noted, lest America find itself unprepared to meet its 2030 and 2050 targets. 

Compliance market maturity by 2030

Compliance markets, it seems, will likely play a larger role, especially in Europe, where regulatory frameworks are more advanced. The EU ETS has set a precedent, and Tamme hinted that the ETS could incorporate carbon removal technologies by the 2030s. 

Manhart cited projections that carbon prices may stabilise at levels conducive to carbon-removal technology by 2040, allowing compliance markets to support a broader array of emissions-reduction tools. The implication is that while these markets may grow slowly, they are likely to be more durable in the long run.

A future still taking shape

The challenge ahead, then, is to transform these various policies, incentives, and technological promises into a coherent framework for carbon management. Tamme’s remark—“Markets need consistency and trust, or they will remain isolated efforts, never achieving the scale required to address the climate crisis”—was a reminder of the urgency. For Europe and the U.S., the task is to build a system that is both credible and scalable.

In the end, Europe and the United States have opted for different paths, yet they continue to keep a close eye on each other. What will it take to make these emerging strategies stick and build the global coherence the climate crisis demands? The stakes are high, and the timeline is tight.