Turbulent VCM could lead to more M&A activity, says Philip Lee

18 February 2025

Irish law firm Philip Lee is broadening the focus of its climate finance team in anticipation that a distressed voluntary carbon market could soon be awash with M&A deals and strategic relocations. 

The firm announced last week that Anna Hickey, partner, will take the helm of a new M&A workstream with immediate effect. She told Environmental Finance this was launched to deal with current demand for support as well as an awareness of where the market might be heading. 

Stunted demand means many companies are “running out of runway” in what she described as “a turbulent time” for the voluntary carbon market.

Many project developers have been forced to close in recent years and there are “many more that are going to be in trouble”, she noted. 

While some companies be able to “hang on” until demand signals improve – which she expects later this decade – some consolidation is likely to happen. 

Lev Gantly, partner at Philip Lee, said this consolidation is particularly likely among engineered removal companies and Direct Air Capture (DAC) project developers, many of which are based in the US.

There are over 150 engineered removal companies in the US alone, he said, and “not all of them are going to make it” because of the difficult market conditions. 

Some might opt to strategically relocate to the EU, in a bid to find more certainty, Gantly predicted. 

Tax benefits are likely to remain in the US, but these companies are still going to have to rely on voluntary buyers – something which is not currently sufficient, he explained. 

However, with engineered removal credits expected to be integrated into the EU's compliance market, Gantly predicted that some firms will relocate to ensure they have a pool of buyers.

Acquisitions were also highlighted as a key area for upcoming action, particularly amongst corporates looking to bolster their carbon capabilities.

Purchasing a small company could be cheaper and more efficient than building out an internal team, they said, noting the difficulties in finding talent with the necessary expertise and experience in the carbon market. 

Investors could also move into the market strategically, to “get a seat at the table”, Gantly predicted, as interest in the market and investment opportunities builds following the finalising of Article 6 negotiations at COP29 in Baku. 

Many are realising that buying a company already in this space “suffering because the [voluntary carbon market] has collapsed” is a potentially lucrative opportunity, he added.