Carbon Offset Prices Could Rise by Fifty-Fold by 2050 - Smart Energy Decisions

Commercial, GHG Emissions, Industrial  -  January 10, 2022

Carbon Offset Prices Could Rise by Fifty-Fold by 2050

Prices for carbon offsets, verified emissions reductions equivalent to one ton of carbon each, could, range from a low of $47/ton to a high of $120/ton in 2050, according to research company BloombergNEF (BNEF). The outcome, says BNEF, will mostly depend on what types of supply are eligible to meet the rapidly expanding universe of sustainability goals, as well as who the primary customers are in the market. 

Kyle Harrison, head of sustainability research at BloombergNEF and the lead author of BNEF’s inaugural report, Long-Term Carbon Offset Outlook 2022, said: “There will be growing pains in the coming years as stakeholders try to understand how to sustainably grow the carbon offset market and determine who it will serve. If done correctly, their patience could be rewarded with a market valued at more than $550 billion by mid-century. Suppliers, buyers of offsets, traders, and investors will need to balance what is idealistic and what is realistic. Otherwise, they risk the offset market burning out just as it’s getting started.”

In the report, BNEF models supply, demand, and prices for carbon offsets under three scenarios: a voluntary market scenario, an SBTI (Science Based Targets initiative) scenario, and a hybrid scenario. Offset prices range from $11-$215/ton in 2030, up from just $2.50 on average in 2020, before narrowing to $47-$120/ton in 2050.

According to BNEF, should all types of offsets continue to be permitted, including those which avoid emissions that would otherwise occur, the market will be oversupplied with largely worthless credits, thereby driving down prices and attracting criticism around quality. A jump in corporate demand, specifically from heavy-emitting industries with no alternatives to offsets, could bridge this gap and lead to moderate increases in prices, but many companies are hesitant to invest further in offsets.

Conversely, they explain, if the market is restricted to just offsets that remove, store or sequester carbon, there will be insufficient supply to keep up with demand, causing significant near-term price hikes and damaging liquidity. If the market evolves to primarily help countries achieve their climate targets rather than companies – a possibility outlined at COP26 – it will soften this supply shortfall. Yet, this is still not ideal for the long-term success of carbon offsets.

 

Keywords: BloombergNEF

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