Projecting the Future of Carbon Offsets
Where is the market headed, why, and how does it impact you?
As our society grows closer to acknowledging the full severity and scope of climate change, it goes without saying that our economic systems must also grow in a ‘greener’ direction. In the minds of many pioneers of this green economy, carbon offsets—investments intended to reduce and remove carbon emissions from our atmosphere—are expected to play an even larger role in the coming decades.
While the carbon offset market is still in its infancy, large corporations such as Delta Airlines and Alphabet (Google’s parent company) have made offsets a cornerstone of their “net-zero” initiatives. Ever the early adopters, Alphabet purchased enough offsets in 2007 to cancel out the totality of greenhouse gas emissions that the company had produced since it was founded. More recently, Delta committed $1 Billion in 2020 to mitigate their carbon emissions by investing in a variety of carbon offset projects including wetland restoration, grassland conservation, and sustainable forest management.
Clearly, carbon offsets have aroused enough interest to garner billion dollar investments from the economic titans of our day—but a crucial question still remains: where is the carbon offset market headed, and how can small business owners take advantage of this burgeoning environmental (and economic) opportunity?
Notable Trends in the (Voluntary) Offset Market
Before delving into the factors which experts believe are driving the demand for high-quality carbon offsets, it’s important to understand the difference between mandatory (compliance) carbon offset markets and voluntary offset programs. For mandatory offset markets, which are created and regulated by national or international carbon reduction initiatives such as the Kyoto Protocol or the Paris Climate Accords, the price per carbon credit is typically much higher due to intense regulatory oversight. In contrast, voluntary carbon offset markets offer buyers a more affordable and specialized approach to purchasing carbon credits—as long as the buyer is willing to do their due diligence in assessing the quality of said offsets. (If you’re interested in high-quality carbon offsets, check out our Montana Sustainability Ecosystem Page)
While the two markets are not fully disconnected and therefore have the ability to influence one another (more on that later…), this article focuses on the state of the voluntary offset market. Within the voluntary market, the overwhelming majority of demand stems from corporations who—of their own accord—wish to make greenhouse gas emission reduction claims in order to increase their marketability and improve public relations. And although the likes of Delta and Alphabet continue to lead the way, we’re starting to see a second wave of interest in the carbon offset market.
Between 2017 and 2018, the amount of offsets being sold in the voluntary marketplace doubled, and this pattern of growth has continued. By 2019, 32% of corporations listed on major stock exchanges had made substantial investments in carbon offsets. The rapid growth in demand for carbon offsets might soon outpace the proliferation of new carbon offset projects, and with continued corporate interest in achieving “net zero” carbon emissions, we can expect the price of carbon offsets to increase in the coming years.
When predicting the future pricing of carbon credits, we must also consider the type of offsets which populate the marketplace. Early offset markets were dominated by solar and wind energy based projects, but in recent years this trend has shown signs of disruption. In 2019, the popularity of forestry and regenerative agriculture offsets spiked by 264%—over 10 times the increase in demand for other types of offsets. As more and more companies begin to invest in offsets, we can expect the demand for newer, more efficient, and better regulated carbon offsets to continue to increase.
Carbon Credit Controversy
As both the Voluntary and Compliance Carbon markets follow the trends outlined above, the broader “Carbon Economy” has moved to adopt credits/offsets as the core, functional unit for decarbonization. From a perspective of commoditization and consistency, offsets offer an essential standardization for monetizing such an instrument, though the quality of the standard has remained in question. This controversy is a fundamental barrier to the adoption of a robust carbon economy, but one that is pivotally important to structure the integrity of true carbon removal.
To generate, trade and sell verified carbon offsets, project developers must go through extensive reporting periods, and pass third-party assessments to ensure the validation of their product. These credits are then given the stamp of approval from private registries, and purveyed on the open market. The criticism here comes largely from a lack of centralization among registries, and an array of possible verification bodies (each requiring different intensities for reporting key metrics).
Without a consistent, centralized reporting system, what guarantees the true quality of the carbon removal? Who is responsible for ensuring that each ton of carbon is truly being removed from the atmosphere, and is being counted to offset only one ton of emitted carbon? What provides assurance that the carbon removal happened in truth, and wouldn’t have happened without the advent of the nascent carbon market?
These questions are both criticisms of carbon markets as well as self reflections from within the industry. They illustrate the variation between credits on the market, and the importance for the consumer (or retailer) to do intensive due diligence to source, purchase, or retire only high-quality offsets.
Carbon offsets are not a silver bullet to fight climate change–They are not a full and comprehensive solution to the changing world our planet faces, but rather sit as a “bandaid” for immediate climate solutions. Purchasing carbon offsets, and supporting a market for carbon removal, is a way to take action now while simultaneously working to reduce your impact in other areas of your life. Carbon offsets provide a mechanism through which climate action can fit within the modern economy, and serve as an economic instrument through which we can combat climate change. Offsets are not the solution, but they are a solution–Designed to work in tandem with an array of strategies to pursue a cleaner future.
What does this mean for you?
Operating off the assumption that you are not in charge of a multi-billion dollar corporation’s sustainability department, there are three primary factors to consider when planning your investment in a greener economy.
Prices are expected to rise as the proliferation of Net Zero initiatives will spike the demand for Voluntary Carbon Offsets.
The Regenerative Agriculture Industry should see a continued increase in activity and investments, as there have been some concerns about the additionality provided by solar and wind offset projects.
Changes in the Mandatory Carbon Offset Market have the potential to cause a run on Voluntary Carbon Credits as we get closer to 2030, the due date for nations to meet their offset goals according to the Paris Climate Accords.
Looking to experts in the field to help pre-vet your choice carbon offsets is a great way to get a second opinion or expand your ability to do due diligence. At Heartwood we are happy to shoulder that research, or direct you to other experts in the field whom you trust!
If you’re interested in learning more about how you can understand, reduce, and offset your carbon footprint, contact us for a free consultation at info@heartwoodllc.org.