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Carbon offset prices set to increase ten-fold by 2030

Tuesday, 08 June 2021

According to a landmark report by UCL and Trove research, while current carbon offset prices are "sustainably low" due to oversupply in the market this will not be the case for long due to a predicted ten-fold surge in corporate demand that could see offset prices rise to between $20-50/tCO2e by 2030. 

According to the research, titled Future Demand, Supply and Prices for Voluntary Carbon Credits – Keeping the Balance, Current prices of carbon offsets are unsustainably low and need to increase significantly to encourage greater investment in new projects that remove carbon from the atmosphere. Additionally, the report states that the reason for these low offset prices is due to an excess of supply built up over several years, together with issues over whether payments for credits really result in additional reductions in carbon emissions i.e additionality. If there was no surplus in the market the report claims that "prices would be around $15/tCO2e higher, compared to $3-5t/CO2e today."

As more corporations around the world adopt more Net Zero goals this could result in a surge in demand for offsets from these corporations in the next decade. According to the report, "This growth in demand should see carbon credit prices rise to $20-50/tCO2e by 2030, as more investment is required in projects that take carbon out of the atmosphere in the long-term. These prices are needed, for example, to incentivise landowners to forgo income from agriculture and instead preserve forests and plant trees. With a further increase in demand expected by 2040 and 2050, carbon credit prices would rise in excess of $50/tCO2e."

On a more granular scale, the prices of carbon offsets vary greatly depending on an array of factors such as: 

  • Project type
  • Additionality 
  • Project location
  • Buyer preferences 
  • The Carbon Standard upon which it is verified etc.

However, on average, the prices have remained low which the report emphasises that if carbon credit prices remain significantly below these forecast levels, companies could be open to criticisms of greenwashing, claiming credit for emission reductions that would have been undertaken anyway. The report further states that "If governments successfully reduce emissions through domestic policies, fewer carbon credits will be available to businesses through the voluntary market. This would increase carbon credit prices further, potentially reaching $100/tCO2e."

Quantitatively, even at $100/tCO2e, the voluntary carbon offset projects that were accessed in this study (deforestation reduction, afforestation, Carbon Capture Storage (CCS), Bioenergy with Carbon Capture Storage (BECCs) and renewables in least developed countries) could potentially deliver around 2bn tCO2e per year of emission reductions on average between now and 2050.

Guy Turner, CEO of Trove Research and lead author of the study, said: “It is encouraging to see so many companies setting Net Zero and Carbon Neutral climate targets. 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.

Co-author of the study Professor Simon Lewis (UCL Geography) said: “The current market in carbon credits is the Wild West, where too often anything goes. A clean-up and independent regulation is required, which will increase the price of carbon credits. 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.”

Last year in September, Former Bank of England Governor Mark Carney launched a Taskforce on Scaling Voluntary Carbon Markets comprised of over 40 leading figures from six continents to take stock of the existing voluntary carbon market while writing up guidelines to bring more credibility to the market. They are expected to present their final proposals before the end of the year ahead of the COP26 Climate Summit.