Market demand for carbon credits
n recent years, there has been a significant increase in the demand for voluntary carbon credits. As countries and companies around the world strive to reduce their carbon footprint, carbon credits have become an increasingly popular tool for achieving carbon neutrality. In this article, we will discuss recent trends in the carbon credit market and explore the pricing of these credits.
Demand for Carbon Credits
According to recent reports, demand for carbon credits has doubled over the last three to four years, reaching 95MtCO2e in 2020. This increase in demand has been seen across all credit types, but especially for Nature Based Solutions (NBS). NBS projects aim to protect and restore natural ecosystems to absorb and store carbon dioxide from the atmosphere, making them a popular choice for companies seeking to offset their carbon emissions.
Carbon Credit Usage by Sectors
Carbon credits are used by a wide variety of sectors, with financial services and chemicals/petrochemicals being the largest users. In 2019, firms in the financial services sector accounted for a quarter of all credits retired, while chemicals and petrochemicals (including oil and gas) accounted for 20%. All other sectors accounted for less than 10% of carbon credit retirements.
Pricing of Carbon Credits
Prices for voluntary carbon credits can vary widely depending on the project type, vintage, transaction size, and standard to which it is accredited. The prices can range from under $1/tCO2e for older projects with fewer verifiable co-benefits to over $20/tCO2e for projects with unique features and specific co-benefits, such as biodiversity and support for indigenous people.
To provide an overview of the pricing trends, the table below shows the average prices in 2019 for credits projects in different categories:
| Project Type | Average Price (2019) |
|---|---|
| Renewable Energy | $6.8/tCO2e |
| REDD+/Forestry & Land Use | $7.9/tCO2e |
| Non-CO2 Gases/Methane | $2.6/tCO2e |
| Energy Efficiency | $1.1/tCO2e |
| Other NBS/Waste Disposal | $3.9/tCO2e |
As seen from the table, renewable energy projects had the highest average price of $6.8/tCO2e, followed by REDD+/Forestry & Land Use at $7.9/tCO2e. Energy efficiency projects had the lowest average price of $1.1/tCO2e.
Carbon credits have become a popular tool for countries and companies striving to achieve carbon neutrality. Recent trends have shown that demand for voluntary carbon credits has doubled over the last three to four years, with financial services and chemicals/petrochemicals being the largest users. The pricing of carbon credits varies widely depending on the project type, vintage, transaction size, and standard. Companies should carefully evaluate these factors to ensure that they are getting the best value for their investment in carbon credits.