4 insights into voluntary carbon market trends

Everyone knows the voluntary carbon market is poised to explode, or is exploding already, depending on who you ask. The worth of all those carbon credits hit $1 billion for the primary time in 2021, and 2022 doesn’t show any sign of abating. Increased corporate commitments to cut back emissions and net-zero pledges have spurred the expansion in demand. 

A latest report from BloombergNEF, “Voluntary Carbon Offset Demand Demystified,” dives deep into publicly available 2021 data from the carbon registry Verra to explore the trends underlying the demand for credits. (Verra makes up 80 percent of the voluntary carbon offset supply out there, about 129.7 million offsets.) The BNEF report looks at 80.1 million retired offsets, or 50 percent of the market in 2021 that had buyers. It analyzes who was buying, how much, what region, the kinds and ages of the credits — and makes predictions for the longer term of the market. Numerous the report backs up previous findings from other investigations into the market, but listed here are 4 latest noteworthy insights. 

1. We don’t know the buyers 

In response to the BNEF report, over 28,000 offset purchases were recorded in 2021. Only 6,200 of those transactions (representing the 80.1 million offsets investigated by the report) disclosed who the precise buyer was. That’s lower than 1 / 4 of the activity, and even less when you think about that most of the listed buyers were only identified with code names. 

Interestingly, transactions for which the customer’s information wasn’t disclosed weren’t, on average, of any significantly lower quality than transactions where the buyers’ identity was listed, in response to the BNEF evaluation.

For instance, the customer’s identity was disclosed for about 42 percent of the projects offering co-benefits resembling improvements to biodiversity, economic advantages for local communities, and so forth. That was roughly the identical percentage because the co-benefits projects that didn’t specifically discover the customer. Transactions involving older offsets, often considered to be of lower quality in the case of criteria resembling permanence or additionality, had a 50/50 likelihood of exposing a buyer.

Buyers need to start out shifting their focus from avoided credits to removal offsets.

What’s the rationale for secrecy? Disclosing sustainability goals and progress sometimes looks as if a lose-lose situation for companies — in the event that they speak about what they’re doing, they get hammered for not doing more, and in the event that they don’t speak about their actions, they get hammered for the looks of not doing anything. Because offsets have been a criticized type of environmental motion, that could possibly be one reason some firms are selecting to remain quiet.  

2. Consumer pressure is driving the market 

The BNEF report notes that two-thirds of disclosed buyers from 2021 were business-to-consumer (B2C) firms, and mosty of the highest offset buyers were consumer-facing brands with household names — Delta Airlines, Shell, Volkswagen and Audi all crack the highest 10.

An estimated 64 percent of offsets retired in 2021 got here from B2C firms, with the remaining going to B2B firms. Many airlines, for instance, allow consumers to purchase carbon offsets directly with their ticket to offset the carbon emissions from their travel. The BNEF report concludes because most disclosed purchases last yr got here from consumer-facing brands, much of the pressure to purchase offsets stems from a desire to appease consumer preferences versus the operational pressure of meeting a climate commitment. 

One other proof point for this argument is that cryptocurrency businesses, fiercely criticized over the past yr resulting from their carbon-intensive processes, were the most important buyers for offsets in 2021.

Some crypto businesses use offsets as a part of their business model. For instance, in response to the BNEF report, Toucan Protocol was by and away the highest buyer with 16.6 million offsets in 2021. Toucan Protocol buys low-quality offsets to show them into tokens to be traded over its “carbon bridge” blockchain ledger. In May, Verra announced it won’t allow carbon offset purchases from its registry to be tokenized by the crypto sector, in an effort to avoid double counting. But it surely is opening a public consultation period to raised evaluate how it could possibly work with third-party crypto firms specializing in anti-fraud measure. 

3. Corporations are counting on vintage offsets 

Vintage offsets, or credits from projects that happened years ago, are popular with corporations, in response to the BNEF evaluation. The report found that over half of all offsets retired in 2021 were produced before 2015, and probably the most common ones got here from 2014. Many firms, including Delta, achieved their carbon neutrality claims by buying a lot of these offsets. But Delta was also the one company in the highest 10 buyers to buy offsets produced in 2021. Overall, lower than half a percent of the offsets retired in 2021 were produced in the identical yr.

Vintage credits are frequently cheaper. Also they are often lower quality, meaning they don’t carry co-benefits and the emissions reduction claims don’t carry as much weight. Some represent emissions reductions which have already taken place but just haven’t been financially rewarded — which runs counter to the promise that credits are funding latest projects to combat climate change.

The BNEF report also conjectures that vintage offsets are credits that had a tough time finding a buyer due to their worsening quality. Carbon registries and efforts resembling the Voluntary Carbon Markets Integrity Initiative are calling for higher disclosures and regulations across the sale of vintage offsets. 

4. Firms are behind on removal offsets

Two forms of offsets made up a lot of the market in 2021, in response to the BNEF report — avoided deforestation (47.6 percent of retirements) and energy generation (43 percent of retirements). Each of those credit categories fall under the avoid emissions bucket, meaning that these projects didn’t remove carbon from the atmosphere but as a substitute prevented the opportunity of latest carbon being released.

Avoided deforestation credits have been criticized for shielding forests that were never really in any danger of being cut down. The BNEF report also states that energy generation credits don’t pass the additionality test, partly because technology costs have come down and the projects now not need financial support from the crediting market. Regardless that geothermal, solar and hydro energy generation credits were imagined to be largely discontinued by Verra starting in January 2020, they still make up a big portion of the credits retired every year, which can need to alter.

In response to the BNEF report, buyers need to start out shifting their focus from avoided credits to removal offsets related to projects resembling direct air capture and reforestation to make an actual impact on the climate crisis. But these styles of offsets are rather more expensive. 


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