Companies have an urgent obligation to decarbonise their operations without derailing their core business. Part of the solution can be found in high-integrity carbon offsets, set to fuel growth in the Voluntary Carbon Market VCM) with new research showing the VCM is on track to become a trillion dollar market in the coming years.
Offsets deemed essential for net zero as demand rises
After decarbonising supply chains and electrifying operations, most companies will find around 10% of their total emissions are unavoidable. To balance these residual emissions companies will need to use carbon credits. These will be most effective in the form of high-quality offsets purchased via the VCM to achieve net zero and truly ensure their emissions are equal to their carbon reductions.
With this becoming clear, a number of new reports and research findings show that the market is set for record growth. In fact, Trove Research estimates that the VCM primary market could grow by 40% in 2023 alone. More broadly, general market research put annual VCM growth at between 10-42% from now until 2027.
A recent ‘bottom-up’ analysis of 2,000 leading global companies by Bain & Company suggests the voluntary carbon market could provide demand for up to 2.6 gigatonnes (Gt) of carbon credits by 2030 – making the market size approximately 13 times larger than it was in 2021.
In parallel, investments into supply also showed substantial growth. A recently updated 2023 study, ‘Abatable Carbon Project Developer Ecosystem Report Jan 2023’ estimates there were upwards of $10 billion of transaction into upstream investment, in the form of carbon credit generation in 2022, anticipating cascading demands as the 2030 net zero deadline draws near.
When it comes to Market, analysis by Quadriz showed nature-based carbon prices spread between primary market and secondary market is widening, due to speculations holding back from exchange trades.
When analysing OPIS REDD+ v22 credits, tier 2 transactions representing OTC vs the NBO benchmark, the gap has doubled from a spread of approx $5 to $10, as OTC demand remains in place. Despite this widening gap, Quadriz is seeing demand picking up slowly again, as buyers return to the table in discussions over new vintages.
A trillion dollar market by 2037
After the primary market reaching a valuation of $2 billion in 2021, a recent report from Bloomberg New Energy Finance, estimates that the voluntary carbon market could reach a value of $1 trillion as soon as 2037. The report cites that with more rigorous quality standards, a boost in market confidence could see prices lift and demand for carbon offsets swell.
Additionally, a report from Shell and the Boston Consulting Group (BCG) supports Bloomberg’s findings estimating the VCM will grow to $10-40 billion in value by 2030, trading 0.5-1.5 billion tonnes of carbon dioxide equivalent. Currently there are transactions covering 500 million tonnes CO2e.
Previous projections had suggested demand for credits would begin to surpass supply in 2024, but data from 2021 shows this may happen even earlier for some more sought after classes of credits. Shell surveyed 200 companies in a global carbon market survey and found 92% expect their carbon credit portfolio price to increase by a median of around 60%.
Using carbon finance to support 2030 goals
This new raft of research shows clear market signals that support using carbon finance to support net zero and, to a lesser extent, 2030 sustainable development goals.
There is increasing appetite for market solutions that deliver returns whilst ensuring fundamental natural capital is protected. These mid and long-term market projections show that if companies offset their unavoidable emissions with high-integrity carbon offsets, there is a real chance that nature can be protected and form part of the solution to keep global temperatures within 1.5C of warming.
