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Carbon offset prices set to increase tenfold by 2030

forest

 Demand for carbon offsets expected to surge as more companies target net zero

BusinessGreen

The cost of offsetting corporate carbon emissions is expected to surge tenfold over the next decade as growing numbers of businesses adopt net zero targets, with carbon credit prices tipped to reach between $20 and $50 a metric ton of CO2 by 2030, according to new research.

At present, the price of carbon offsets — where organizations compensate for their own emissions by purchasing credits issued by emission reduction projects — remains "unsustainably low" thanks to a surplus of credits on the voluntary offset market built up over many years, according to the study.

Carbon offset prices on average stand at just $3-5 per metric ton of CO2 at present, with experts fearing that prices are far below the level required to both unlock significant investment in emissions-mitigation measures, such as carbon removal technologies or large scale nature-based solution projects, and provide companies with an additional financial incentive to reduce their own emissions and avoid the need to purchase offset credits.

But according to the study published by Trove Research and University College London (UCL) late last week, the current surplus of carbon offset credits could be quickly eroded, with demand expected to increase fivefold or even tenfold over the next decade as companies seek to deliver on their net zero emissions pledges.

As such, prices could rise to $50 per metric ton by 2030, which researchers said would help to incentivize investment in climate action by encouraging land owners to shift some of their income away from agriculture and towards preserving forests and planting trees.

Moreover, with demand for carbon credits expected to continue rising beyond 2030, offset prices are likely to grow further by mid-century. The report argues that if governments successfully reduce emissions through domestic policies, then it would leave fewer carbon credits available for businesses through the voluntary market, which potentially could drive prices up towards $100 per metric ton.

"It is encouraging to see so many companies setting net zero and 'carbon neutral' climate targets," said Guy Turner, CEO of Trove Research and lead author of the study. "What this new analysis shows is that these companies need to plan for substantially higher carbon credit prices and make informed trade-offs between reducing emissions internally and buying credits from outside the company's value chain."

Clean-up and independent regulation is required for offsets which would push up carbon credit prices.

The report also reiterates long-standing concerns over the credibility of parts of the carbon offset market. It warns that if carbon credit prices remain low over the coming decades, then companies risk facing claims of "greenwashing" if they claim credit for decarbonization efforts that would have been undertaken anyway.

Similarly, it cautions that the potential for the voluntary carbon market — which it labels a "wild west" at present due to lack of robust regulation or oversight — should be placed in a context where direct emissions reductions should remain the top priority for businesses' climate efforts, as even a robust offset market will not be able to compensate for still rising global emissions.

Even if carbon offset prices rise as high as $100 per metric ton of CO2, the measures assessed in the study — including reducing deforestation, boosting forest restoration, carbon capture and storage (CCS), and bioenergy with CCS (BECCS) — could only compensate for around 4 percent of current global greenhouse gas emissions, and just 10 percent of the gap between global "business as usual" emissions in 2030 and pledges made by countries signed up to the Paris Agreement for the end of the decade, the researchers estimate.

Carbon offsets are therefore only set to be a modest market compared to the economy-wide emissions reductions needed to reach global climate goals in the Paris Agreement and put the world on a pathway to net zero by 2050, it concludes.

Former Bank of England Gov. Mark Carney is leading efforts to draw up new guidelines to enhance the credibility of the voluntary global market for carbon offsets, alongside Bill Winters, CEO of financial giant Standard Chartered. They are expected to present their final proposals before the end of the year ahead of the COP26 Climate Summit, at which carbon credits are set to be a major bone of contention, amid concerns from green groups that the Carney-led offset taskforce is failing to adequately address fears that carbon credits can be used to enable corporate "greenwash."

UCL Professor Simon Lewis, a contributor to the research, said that while carbon offsets were set to become a valuable financial mechanism for funding forestry and habitat protection efforts as well as technological development over the coming decade, a "clean-up and independent regulation is required," which would in turn help to push up carbon credit prices.

"The current market in carbon credits is the wild west, where too often anything goes," he explained. "This is because in reality it is costly to remove carbon dioxide from the atmosphere. Overall it will be cheaper in the long-run to invest in moving to zero emissions rather than relying on offsets. But for those emissions that remain, the true price of removing carbon from the atmosphere must be paid, as the alternative is greenwash."

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