💸Carbon Credit Market

The Current Market

The global carbon offset market is considered to be a billion-dollar industry. It is determined to minimize carbon emissions to battle climate change and ensure the sustainable development of the planet for future generations.

The total carbon offset market comprises mandatory and voluntary markets, which are valued at around $271 billion and appr. $2 billion (as of 2021). Mandatory carbon offsets are normally leveraged by organizations or governments that are required to account for their carbon emissions by law.

The voluntary carbon market (VCM), on the other hand, functions outside of compliance markets and is viewed as a more popular carbon offset market. It empowers businesses and individuals to buy carbon offsets on a voluntary basis with no intended use for compliance purposes. In recent years, a strong growth trajectory for the VCM has been registered. This is because the focus on mitigating climate change has increased as well. The VCM grew in value towards $2 billion in 2021. This quadrupling in market value from 2020 was driven by an acceleration of nature-based solutions trading volume and higher prices for these and other projects with non-carbon environmental and social benefits, such as clean cookstoves and water purification devices. VCM has already topped the $2 billion mark in 2022. Growth has been driven by both higher prices and stronger demand for carbon credits, with nearly 500 million credits traded in 2021, at an average price of $4 per ton – up 60% year on year.

Moving Forward

Mandatory carbon offsetting market is Valued at $271 billion in 2021, a 128% increase from 2008

Voluntary carbon offsetting market The VCM grew in value towards $2 billion in 2021. The VCM is expected to hit $50 billion by 2050.

Importantly, nature-based and renewable energy credits on the VCM also witnessed significant growth:

● Compared to the previous years, the demand for nature-based credits in 2021 more than doubled.

● REDD+ credits, which aim to deal with the deforestation issue, grew at 280% between 2020 and 2021.

The demand for carbon credits will continue to rise. It is estimated that the volume of credits required globally will increase at least 20-fold by 2035. The increase in credit volumes will lead to rising supply costs. It is projected that prices for credits could rise to a central estimate of $80-$150 per ton by 2035. Yet, these numbers could become lower if technology costs fall more rapidly or if the global abatement effort is less ambitious. The price trajectory has significant implications, as the price of carbon credits is directly associated with society’s willingness to combat climate change.

According to the Intergovernmental Panel on Climate Change, limiting global warming to 1.5C above pre-industrial levels will require carbon emissions to be removed from the atmosphere. Yet, it is not clear which technologies will be able to remove carbon from the atmosphere at scale, and the costs of doing so. Tightening national carbon emissions budgets will likely make governments impose more stringent regulatory requirements, which in turn will reduce the space for ‘voluntary carbon commitments’. Moreover, tightening carbon emissions budgets will require organizations to use high-integrity carbon credits to meet regulatory obligations, particularly after 2035.

It is also projected that the supply of carbon credits will become more standardized due to the competitive pressures and the requirements to scale up supply. Overall, the demand for carbon credits could increase by a factor of 15 by 2030 and by a factor of up to 100 by 2050. Meanwhile, the market for carbon credits could reach more than $50 billion in 2030.

Our Future

Carbon assets tokenization would allow the industry to benefit from secure and transparent records — from generation to sale to retirement. It will allow companies and organizations to provide official certificates that can be used as verified proof of their carbon offset initiatives, backed by immutable blockchain transactions that anyone can view. Many features of the carbon trading market are really similar to the blockchain mechanism. Blockchain is a decentralized database, which can be viewed as a form of existence of data while carbon trading is the use of data. Its main goal is to assess, store, trade, and manage carbon emissions. Blockchain allows companies to avoid fraud and double-counting.

Last updated