New analysis from Ecosystem Marketplace, the leading globally recognized platform for tracking carbon markets, shows that voluntary carbon markets are poised to expand dramatically in 2021 and beyond, driven by a rapid acceleration of corporate net zero and carbon neutral climate commitments and reflected in bold new initiatives such as the Institute of International Finance’s (IIF’s) Taskforce on Scaling Voluntary Carbon Markets (“the Taskforce”), headed by former Bank of England Governor Mark Carney. This has led to new and renewed interest in deeper, more detailed, and timely data on voluntary carbon markets.
“Voluntary carbon markets are at a long-anticipated threshold,” said Stephen Donofrio, an author of the report and Director of Ecosystem Marketplace. “Incredible growth of voluntary offsets is within sight if global economies are to stand a chance in meeting Paris Agreement goals. Achieving this will require a thoughtful approach, complementing already-available infrastructure, to create a high-integrity, innovative, and transparent market that can deliver climate success, while also achieving Sustainable Development Goals.”
Greenhouse gas emissions must shrink to 50 percent of current levels by 2030 and to net zero by 2050 in order to meet the Paris Agreement’s 1.5°C target. Climate scientists agree that holding warming below 1.5°C would likely protect humanity from the most severe effects of climate change.
In addition to countries and businesses cutting emissions, meeting this target will require at least a 15-fold scale-up of voluntary offsetting by 2030 in order to meet expected demand, according to the Taskforce.
“As demand continues to grow, some forecasters are actually projecting a shortage of standards-issued and third-party verified offsets,” said Patrick Maguire, an author of the report and Senior Program Manager of Ecosystem Marketplace. “Although more demand can be a good thing, the risk is that buyers will turn to unverified and/or non-standardized carbon offsets and falsely claim carbon neutrality. That could undermine confidence in voluntary markets writ large.”
Market participants interviewed by Ecosystem Marketplace say that improving transparency on offset prices and educating potential buyers are key to markets growing while maintaining quality. Among the report’s key findings:
- Ecosystem Marketplace data shows a wide variation in average offset prices and volumes transacted by project type, region, standard, co-benefits, among other “additional attributes.” This reflects the broad, and growing, diversity in buyer preferences for achieving climate to sustainability goals, and in their general willingness-to-pay for voluntary offsets.
- Market participants are skeptical about creating an exchange-driven “core” price on carbon, driven more by a concern that overall credit quality will suffer without accurate pricing for the wide variety of additional attributes that voluntary carbon markets credits exhibit, which many buyers demand, as cheaper credits without co-benefits will have an advantage.
- Markets participants repeatedly expressed the importance of having reliable data on price variances due to such attributes. Such data will be increasingly useful if the Taskforce succeeds in generating a mechanism for creating a core carbon price.
- Demand for voluntary carbon offsets has fluctuated in response more so to climate awareness and willingness to pay for reductions rather than to the current structure of voluntary markets. At the same time, there is a consensus that current structures must brace for an influx in demand to scale up without sacrificing quality.
The Taskforce published its first public consultation document on November 10, 2020 with 17 recommendations for scaling voluntary carbon markets. Ecosystem Marketplace and many of the market actors providing data for its new report are members of the Taskforce Consultation Group or of the Taskforce itself. The Taskforce’s most significant recommendation is the creation of a “core carbon price,” which will serve as a reference price on which both exchange-traded and OTC transactions can be structured.
Donofrio agrees that efficient price discovery, and a more nuanced understanding of how buyer preferences for additional attributes like standard, project type, location, and co-benefits affect price, are a clear priority moving forward. According to Donofrio, EM will be working with its partners and carbon markets leaders to increase the frequency of EM’s gathering and reporting data on these rapidly evolving markets in order to increase price transparency and promote robust growth and help establish a global reference price.
“Better information and communication have to be a priority for the markets,” says Steve Zwick, an author of the report and Managing Editor of Ecosystem Marketplace. “We still see big gaps in understanding of carbon markets among corporate buyers and in media coverage.”