Carbon offset prices could skyrocket this decade

The era of easily affordable carbon offsets used by some companies as a ‘get-out-of-jail-free card’ could be coming to end within the next few years, with prices potentially surpassing $200 per tonne.

Posted on 27 January 2022

The era of easily affordable carbon offsets used by some companies as a ‘get-out-of-jail-free card’ could be coming to end within the next few years, with prices potentially surpassing $200 per tonne.

Energy research firm BloombergNEF has attempted to forecast how the carbon offset market will mature over this decade and beyond.

Supply and demand

The outcome will mostly depend on what types of offset remain eligible to meet formal sustainability goals. Should all types of offsets continue to permitted, including controversial varieties that ‘avoid emissions’ rather than directly removing carbon from the atmosphere, Bloomberg says the market will end up oversupplied with “largely worthless credits”. This would drive down prices but attract more criticism of carbon offsets as a viable method of climate action.

However, if the market is restricted to just higher quality offsets that remove, store or sequester carbon - as called for by many environmental and business groups - there will be insufficient supply to keep up with demand, causing significant near-term price hikes.

The undersupply in the market could see prices rocket up to $224 per tonne by the end of this decade, before falling to around $120 per tonne by 2050. This compares to an average price of around $14-15 per tonne today.

Even in the most balanced scenario, where change is managed more gradually, prices could still surpass $200 per tonne by the early 2030s.

‘Prioritise your gross emissions’

Kyle Harrison, head of sustainability research at BloombergNEF, said: “No matter the scenario, corporations and other entities looking to buy carbon offsets shouldn’t expect them to be a get-out-of-jail-free card for much longer.

“As the market matures – which it will – and processes are put in place to make offsets resemble a traditional commodity, prices will inevitably rise and companies will need to prioritise their gross emissions more than ever.”

According to a recent YouGov survey of UK businesses, 40 per cent of companies are currently employing carbon offsetting practices as part of their sustainability efforts.

Read our beginner’s guide to carbon offsetting

 

Posted under General Interest and Carbon Reduction on 27 January 2022