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
Corporate Action
Why companies engage with carbon markets
| Corporate Driver | Carbon Credit Application |
|---|---|
| Net-zero targets | SBTi requires reduction first; credits for residual emissions (BVCM framework) |
| Scope 3 obligations | Supply chain emissions create demand for insetting and value chain credits |
| Stakeholder pressure | Investors, customers, employees expect climate action and transparency |
| Compliance requirements | ETS obligations, CBAM exposure, CORSIA for aviation |
Corporate concerns: Greenwashing risk, additionality uncertainty, reputational exposure from poor-quality credits. Quality due diligence is now essential.
Policy & Governance
The regulatory architecture shaping carbon markets
| Framework | Role in Carbon Markets |
|---|---|
| Paris Agreement Art. 6 | International carbon trading rules - 6.2 bilateral, 6.4 UN mechanism |
| EU ETS / UK ETS | Compliance markets creating regulated demand (€80-100/tonne) |
| ICVCM / CCP | Quality standards for voluntary market integrity |
| CORSIA | Aviation offsetting scheme driving airline demand (mandatory 2027) |
| EU CBAM | Carbon 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.
Ecosystem Services
Carbon sequestration as a regulating service
| Service Type | Carbon Market Connection |
|---|---|
| Regulating (primary) | Carbon sequestration is a climate regulation service - the core of what carbon credits monetise |
| Supporting | Soil carbon storage depends on soil health, nutrient cycling - the foundation |
| Co-benefits | High-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.
Landscapes & Jurisdictions
Where carbon outcomes actually happen
| Landscape Context | Carbon Market Application |
|---|---|
| Forests & woodlands | Woodland Carbon Code, REDD+, afforestation/reforestation projects |
| Peatlands & wetlands | Peatland Code, wetland restoration, blue carbon (mangroves, seagrass) |
| Agricultural land | Soil carbon, agroforestry, regenerative agriculture credits (emerging) |
| Industrial sites | Direct 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.
Planetary Foundations
The science underpinning why carbon markets exist
| Connection | How Carbon Markets Relate |
|---|---|
| Climate change boundary | Carbon markets exist because atmospheric CO2 concentration matters for planetary stability |
| Carbon cycle | Credits price intervention in the carbon cycle - sequestration, storage, avoided release |
| 1.5°C pathway | Paris 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.