(Credit: Pixabay)As mandates regarding carbon credits increase and offerings open up beyond carbon-intensive industries, the market for the offsets is expected to grow substantially over the next few years, according to a report from Coherent Market Insights.
The carbon credit market is expected to grow at a CAGR of nearly 31% from 2020 through 2027, with a value reaching $2.4 trillion. In 2019, the market was valued at $211.5 billion.
The significant increase is the result of continuing focus on industries lowering their carbon emissions and with several countries potentially mandating their use. According to the report, India recently proposed carbon credits as a way to improve industrial emissions, which could grow the market in that country to $200 billion.
The report also says carbon offsets are currently mostly available to emissions-intensive industries and ones that are dealing with significant reduction needs and regulations. However, the growing market is likely to attract funding from financial institutions to increase their use, and non-profit organizations are using them to fund and promote climate targets.
According to the report, forestry will hold the largest carbon credit market increase during the forecast period. Forests contain about a quarter of the world’s carbon, and the loss of forests accounts for about 20% of carbon emissions.
The report also analyzed the market by other sectors including energy, transportation, buildings, industry, agriculture, and water and wastewater.
A carbon credit represents a metric ton of carbon removed from the atmosphere. They can be purchased by a company to offset the emissions from their production and operational processes. By obtaining a carbon credit, a company can then generate that level of emissions. If a company has too many carbon credits, it can sell or trade them with other organizations.
Those offsets are then produced for the organizations through projects such as renewable energy or reforestation or carbon capture initiatives.
According to 8 Billion Trees, carbon credits are generally below the $40 to $80 per metric ton level needed to reach 2050 global net-zero targets. Carbon Credits.com says that properly vetted, “high-quality” offsets can represent substantial and measurable emissions reductions, although voluntary offsets, unreliable issuers, and other programs can be difficult to measure.
In the United States, no national carbon market exists, and only California has an established cap-and-trade system. Programs exist in some form in Canada, the United Kingdom, China, New Zealand, Japan, and South Korea, according to the website.
The Coherent Market Insights report says a lack of international standardization hurts the carbon credit market.
In March 2022 Abu Dhabi Global Market partnered with AirCarbon Exchange to create what it says is the world’s first regulated carbon trading exchange and carbon clearing house.
Microsoft has pledged to offset more carbon than it emits by 2030. Companies use carbon offsets on a smaller scale as well, such as Commercial Metals Company purchasing them to help produce net-zero steel products.
Key players in the market according to the report include WGL Holdings, Enking International, Green Mountain Energy, Native Energy, Cool Effect, ClearSky Climate Solutions, Sustainable Travel International, 3 Degrees, Terrapass, and Sterling Planet.
