Increased use of carbon offsets by corporates among drivers of future market expansion.
Two new reports predict strong growth in the voluntary carbon market (VCM) this year as increasing numbers of companies globally set carbon neutrality and other climate goals that will rely partly on use of carbon offsets. The expected growth comes amid moves to formalise VCMs, which have previously struggled to overcome questions of scale and credibility, in order to attract further investment.
Independent research and data company Trove Research reported that the VCM would grow by 50-80% this year to total between US$1.5-US$1.7 billion. It estimated the global market was worth just under US$1 billion at the end of 2021, having grown 190% during the year. Growth for 2022 would be driven by more companies retiring credits for carbon neutral claims, coupled with increases in carbon credit prices.
Trove has previously commented that persistently low prices in the voluntary market are a barrier to its wider acceptance and growth.
Separately, data provider Refinitiv said it expected interest in the VCM to keep growing; as larger firms transact higher volumes, trading platforms will offer more standardised contracts resulting in higher liquidity and in turn more transparency in trading.
Speaking about the growing demand, Maria Kolos, Analyst, Refinitiv Carbon Research, said VCM volume and value are small compared to the size of mandatory carbon markets. However, “the VCM has great potential for growth and can also be complementary to an emissions trading scheme”.
Both the Voluntary Carbon Markets Integrity Initiative and the Science-Based Targets initiative have insisted that offsets should play a minimal role in corporates’ net zero transition strategies.
Refinitiv’s carbon market review of 2021 noted that several airlines had used the VCM in the absence of offsetting under the industry’s CORSIA scheme, noting “there will be no offsetting under CORSIA anytime soon”. Airlines were not the only source of demand in the VCM, with corporates, organisations, and individuals increasingly purchasing units. “The VCM is still a fragmented market with several competing exchanges and much volume traded bilaterally,” the report said.
The Taskforce on Scaling Voluntary Carbon Markets (TSCVM) and the VCMI would be influential in the years to come, said Refinitiv. The initiatives will respectively define and standardise criteria for units traded in the VCM, and agree on rules to ensure project integrity and transparent transactions.
“Though the VCM is made up of private sector actors and does not directly contribute to countries reaching their climate change mitigation goals under the Paris Agreement, it does indirectly contribute to overall higher climate change mitigation ambition,” said Refinitiv.
“By investing in carbon projects, voluntary offset buyers sponsor emission reduction projects that help achievement of mitigation goals in the countries they take place in. This in turn allows those countries to increase their mitigation ambition in the longer term.”
Agreement at COP26 by nearly 200 countries to implement Article 6 of the Paris Agreement, thus creating common rules around carbon trading, has been seen as providing a further boost to the VCM.
Nearly one-third (30%) of all credits issued in the VCM during the fourth quarter of 2021 came from REDD+ projects, said Trove Research. The Envira Amazonia Project in Brazil was the largest issuer of REDD+ credits during the quarter. The issuances for the project covered emission reductions that occurred from 2013-2018.
Nature restoration credits, which Trove Research said were the only removal credits available at present, amounted to just 10% of issuances in Q4 2021. Total issuances were 368Mt, up 65% on Q4 2020. Nature restoration credits actually fell by 17% compared to Q4 2020.