Carbon credits are issued when projects such as restoring forests, protecting mangroves or replacing fossil fuels with cleaner energy can demonstrate and verify that they have reduced or removed greenhouse gas emissions. These credits can then be sold, generating a source of revenue.

Dr Olivier Mahul, Global Manager for Carbon Solutions at the World Bank and OMS Visiting Fellow, argues that carbon markets can serve as a financing tool to unlock climate-smart investments that reduce emissions while strengthening livelihoods, resilience and sustainable economic development.

A few weeks ago, during a visit to Bangladesh, I stood beside a solar panel powering an irrigation system for farmers who had once depended on diesel. The panel was simple. The impact was not. It meant lower fuel costs, more reliable irrigation, and a cleaner source of energy for a livelihood that depends on the weather. It was a reminder that climate action is not only about reducing emissions. It is also about helping people adapt and invest in a changing world. 

Carbon market debates often focus on prices, methodologies, registries, and standards. Those debates matter because carbon credits exist for a reason: reducing or removing greenhouse gas emissions has global value. That fundamental principle remains unchanged. Carbon markets should continue to reward high-integrity mitigation outcomes. But they can obscure a larger opportunity: carbon credits are not the objective; climate-smart development is.

The more importance question is not simply how many emissions a project can reduce, but how carbon credits can unlock investments that build resilience, strengthen livelihoods, and support climate-smart development.

The more importance question is not simply how many emissions a project can reduce, but how carbon credits can unlock investments that build resilience, strengthen livelihoods, and support climate-smart development.

The world urgently needs to invest in adaptation and resilience. Developing countries will need about US$310 billion per year by 2035 for adaptation, while international public adaptation finance flows were less than US$30 billion in 2025. Meanwhile, degraded landscapes, disappearing mangroves, pressured forests, droughts, floods, and vulnerable rural livelihoods are making climate risks more severe. Yet we know what works: restoring forests, protecting mangroves, advancing climate-smart agriculture, scaling agroforestry, and restoring peatlands can improve resilience while supporting livelihoods, ecosystems, and productivity.

These are investments in natural capital. Like roads, ports, or electricity networks, they generate economic returns. They increase productivity, reduce future losses, create jobs, and strengthen food security. The challenge is not their value, but their financing.

Carbon finance can make the difference, not by replacing traditional sources of finance, but by complementing them. Carbon is an additional revenue stream, much like tourism revenues support protected areas or hydropower revenues justify watershed protection. Carbon revenues strengthen the business case, improve the risk-return profile of the underlying project, attract investment, and reward communities for protecting the ecosystems on which we all depend.

Carbon finance can have an impact far greater than the value of the credits themselves. Every dollar of carbon revenue can help unlock investments that generate multiple returns for people and the planet: lower emissions, healthier ecosystems, greater resilience, higher agricultural productivity, and stronger rural economies.

Carbon finance can have an impact far greater than the value of the credits themselves. Every dollar of carbon revenue can help unlock investments that generate multiple returns for people and the planet: lower emissions, healthier ecosystems, greater resilience, higher agricultural productivity, and stronger rural economies.

This approach is already delivering results around the world. In Bangladesh, carbon finance supported the expansion of solar irrigation systems, allowing farmers to replace diesel pumps with clean energy. Farmers reduced fuel costs, gained access to more reliable irrigation, and improved agricultural productivity. In Ethiopia, more than 12 million verified emission reductions generated through sustainable landscape management are expected to create a new source of revenue that can be reinvested in restoring degraded landscapes and supporting rural communities. In Colombia’s Orinoquia region, sustainable cattle ranching, agroforestry, and forest conservation are increasing agricultural productivity while reducing pressure on forests. Costa Rica has shown for decades that rewarding landowners for protecting forests can reverse deforestation while creating opportunities for rural communities. Carbon finance has become an additional source of revenue supporting climate-smart development.

Carbon is valuable only if it helps deliver those development outcomes.

None of these investments exist because someone wanted to generate carbon credits. They exist because governments and communities wanted healthier forests, more productive farms, cleaner air, more affordable energy access, stronger livelihoods, and greater resilience. Carbon simply helped make those investments financially viable.

Carbon markets have often been judged by the number of credits issued or their market price. But no farmer wakes up hoping to produce carbon credits. Farmers want reliable harvests. Fishers want healthy coastal ecosystems. Communities want protection from floods and droughts. Urban residents want cleaner air. Governments want stronger economic growth, more and better jobs, and more resilient infrastructure. Carbon is valuable only if it helps deliver those development outcomes.

The future success of carbon markets will not be determined by the number of credits they produce, but by whether they help build more resilient economies, healthier ecosystems, stronger communities, and ultimately more and better jobs on a liveable planet.

This shift in thinking also has profound implications for public policy. As carbon revenues become larger and more predictable, they should increasingly be treated as strategic public revenues rather than stand-alone transactions. This requires a broader coalition. Ministries of Environment remain essential stewards of environmental integrity, but Ministries of Finance also need to be at the table. Decisions about whether to use credits toward national climate commitments, sell them into international markets, or reinvest revenues in resilience are ultimately development and fiscal policy decisions.

Carbon should not simply finance carbon. Carbon should finance the next generation of climate-smart investments: investments that simultaneously reduce emissions, strengthen resilience, protect nature, and improve livelihoods. Instead of asking how big carbon markets can become, we should ask how much climate-smart investment they can unlock. 

Because the future of carbon markets is not a choice between mitigation and adaptation. It is about recognising that the most valuable investments increasingly deliver both. The future success of carbon markets will not be determined by the number of credits they produce, but by whether they help build more resilient economies, healthier ecosystems, stronger communities, and ultimately more and better jobs on a liveable planet.

This opinion piece reflects the views of the author, and does not necessarily reflect the position of the Oxford Martin School or the University of Oxford. Any errors or omissions are those of the author.