CAPITAL FLOWS: SYSTEMS VIEW

Carbon Markets

A Systems View
Mapping carbon markets across the Pandion Sustainability Framework

In 30 Seconds

Carbon markets don't exist in isolation. They sit within a complex system spanning:

  • ScienceClimate system understanding that defines what “success” means
  • LandscapesWhere sequestration and avoided emissions actually happen
  • ServicesCarbon sequestration as a regulating ecosystem service
  • PolicyRegulatory frameworks shaping demand and standards
  • CorporateNet-zero commitments and Scope 3 obligations driving purchases

This page: Maps carbon markets against our 5-layer framework, showing how they connect across Capital Flows, Data Flows, and the three enabling systems.

The 5 Layers: Where Carbon Markets Fit

L5

Corporate Action

Why companies engage with carbon markets

Corporate DriverCarbon Credit Application
Net-zero targetsSBTi requires reduction first; credits for residual emissions (BVCM framework)
Scope 3 obligationsSupply chain emissions create demand for insetting and value chain credits
Stakeholder pressureInvestors, customers, employees expect climate action and transparency
Compliance requirementsETS obligations, CBAM exposure, CORSIA for aviation

Corporate concerns: Greenwashing risk, additionality uncertainty, reputational exposure from poor-quality credits. Quality due diligence is now essential.

L4

Policy & Governance

The regulatory architecture shaping carbon markets

FrameworkRole in Carbon Markets
Paris Agreement Art. 6International carbon trading rules - 6.2 bilateral, 6.4 UN mechanism
EU ETS / UK ETSCompliance markets creating regulated demand (€80-100/tonne)
ICVCM / CCPQuality standards for voluntary market integrity
CORSIAAviation offsetting scheme driving airline demand (mandatory 2027)
EU CBAMCarbon border tariffs creating pressure for global carbon pricing

The regulatory trajectory: Voluntary → expected → mandatory. Carbon markets are following TCFD's path. Policy creates demand; quality standards ensure supply meets expectations.

L3

Ecosystem Services

Carbon sequestration as a regulating service

Service TypeCarbon Market Connection
Regulating (primary)Carbon sequestration is a climate regulation service - the core of what carbon credits monetise
SupportingSoil carbon storage depends on soil health, nutrient cycling - the foundation
Co-benefitsHigh-quality projects often deliver biodiversity, water, community benefits alongside carbon

The stacking opportunity: Carbon credits can be one revenue stream among many from the same landscape - carbon + biodiversity + water quality + premium produce. This creates more resilient economics for land stewards.

L2

Landscapes & Jurisdictions

Where carbon outcomes actually happen

Landscape ContextCarbon Market Application
Forests & woodlandsWoodland Carbon Code, REDD+, afforestation/reforestation projects
Peatlands & wetlandsPeatland Code, wetland restoration, blue carbon (mangroves, seagrass)
Agricultural landSoil carbon, agroforestry, regenerative agriculture credits (emerging)
Industrial sitesDirect air capture, enhanced weathering, CCUS projects

Landscape-level thinking: Individual projects aggregate to landscape-scale outcomes. Jurisdictional approaches (e.g., REDD+ at national level) may be more effective than fragmented site-by-site projects.

L1

Planetary Foundations

The science underpinning why carbon markets exist

ConnectionHow Carbon Markets Relate
Climate change boundaryCarbon markets exist because atmospheric CO2 concentration matters for planetary stability
Carbon cycleCredits price intervention in the carbon cycle - sequestration, storage, avoided release
1.5°C pathwayParis Agreement targets create the scientific basis for net-zero commitments driving demand

Key insight: Carbon markets are a human construct attempting to price a planetary system process. The science defines what “1 tonne CO2e” means and why it matters.

Capital Flows: How Money Moves

Capital IN

Investment entering the system

  • Corporate buyers: Net-zero budgets, Scope 3 obligations
  • Compliance entities: ETS participants, CORSIA airlines
  • Institutional investors: Carbon funds, ESG mandates
  • Advance purchases: Forward agreements, offtake contracts

Capital THROUGH

Mechanisms moving money

  • Registries: Verra, Gold Standard, national systems
  • Brokers/exchanges: CBL, Xpansiv, Climate Impact X
  • Project developers: South Pole, 3Degrees, Pachama
  • Verification bodies: Third-party auditors (VVBs)

Capital OUT

Revenue reaching actors

  • Land stewards: Farmers, forest managers, community groups
  • Project operators: Implementation and management fees
  • Conservation orgs: NGOs managing protected areas
  • Technology providers: DAC operators, MRV platforms

The Value Distribution Question

Capital IN is growing. Capital THROUGH infrastructure is maturing. But how much Capital OUT actually reaches land stewards? Project developers and intermediaries capture significant value. The land steward's question - “how much do I actually get per tonne?” - often reveals uncomfortable margins in the value chain.

Data Flows: The Four Evidence Types

Carbon markets depend on robust data infrastructure across four key evidence categories.Learn more about Data Flows →

MRV Systems

Measurement, Reporting, Verification

  • Baseline: Pre-project carbon stock assessment
  • Quantification: tCO2e sequestered or avoided
  • Verification: Third-party VVB audits
  • Monitoring: Ongoing satellite and ground-truth

Traceability

Credit provenance and chain of custody

  • Registry IDs: Unique credit serial numbers
  • Ownership chain: Issuance → transfer → retirement
  • Project origin: Geographic and methodological source
  • Double-counting: Prevention through registry protocols

Disclosure Data

Corporate reporting requirements

  • Retirement claims: What companies can say publicly
  • GHG inventory: Integration with Scope 1/2/3 reporting
  • Regulatory filings: Art. 6 corresponding adjustments
  • Frameworks: CDP, TCFD, SBTi alignment

Impact Evidence

Beyond carbon outcomes

  • Co-benefits: Biodiversity, water, community metrics
  • Additionality: Counterfactual analysis evidence
  • Permanence: Long-term storage risk assessment
  • Quality ratings: Sylvera, BeZero, Calyx scores

The Data Infrastructure Challenge

Carbon markets have a clear unit (tCO2e) but the quality of evidence varies enormously across these four categories. High-integrity credits require strong MRV systems, clear traceability, compliant disclosure data, and demonstrable impact evidence. The gap between “project claims X” and “data proves X” remains a credibility battleground.

The Three Enablers

Digital Infrastructure

  • Registries: Verra, Gold Standard, national systems tracking issuance and retirement
  • Remote sensing: Satellite monitoring for forest cover, land use change
  • Platforms: Marketplaces (CBL, Xpansiv) connecting buyers and sellers
  • IoT/sensors: Ground-truth data for enhanced MRV

AI & Automation

  • Carbon modelling: Machine learning for stock/flux estimation
  • Change detection: AI identifying deforestation, fire, reversals
  • Due diligence: Automated quality screening across projects
  • Matching: Buyer-seller matching based on criteria

Standards & Interoperability

  • Methodologies: Verra, Gold Standard, ACR approaches
  • Quality benchmarks: ICVCM Core Carbon Principles
  • Rating systems: Sylvera, BeZero, Calyx assessments
  • Registry protocols: Double-counting prevention, unique IDs

Key Questions

For buyers:

How do you assess carbon credit quality and avoid greenwashing risk? What due diligence is sufficient?

For corporates:

How do credits fit your net-zero strategy - residual offsetting or contribution beyond your footprint?

For project developers:

How do you structure projects that are both financially viable and ecologically sound?

For investors:

What's the risk/return profile of carbon as an asset class? How do you verify claims?

For the system:

Can voluntary markets scale while maintaining integrity? Or does scaling require compliance mechanisms?

Pandion's Perspective

We work across all five layers - understanding climate science, landscape realities, ecosystem services, policy frameworks, and corporate needs. This systems view helps us:

  • Translate between different stakeholder languages
  • Identify where capital flows are blocked or value is captured
  • Design data architectures that serve multiple purposes
  • Assess credit quality beyond surface-level claims

Carbon markets are one mechanism among many. The question isn't just “do credits work?” but “how do credits fit within the broader system of climate finance?”

Disclaimer: This content is for general educational and informational purposes only. It does not constitute financial, investment, legal, or tax advice and should not be relied upon as such. Pandion Studio does not provide regulated investment advice. For specific guidance on your circumstances, please consult appropriately qualified professionals.