Carbon offset credits set to soar on net zero ambitions

The price of carbon offsets – widely used by those seeking to counterbalance their pollution – is expected to rise by as much as 4800 per cent by 2050, as major emitters scramble to meet net zero targets.

Carbon offsets were in 2020 being sold for about $US2.50 a tonne but with many countries pledging to reduce carbon output to net zero by 2050, Bloomberg New Energy Finance (BNEF) said prices could rise to $US120 a tonne.

Although prices are expected to soar, BNEF said there was a wide range in their forecast and it would depend on the supply of carbon offsets. If the availability of the instruments is limited, prices will hit that $US120 a tonne. If left unchecked, the price of carbon offsets is expected to total $US47 a tonne.

“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,” BNEF said its report.

“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.”

Demand from Australia for carbon offsets has grown significantly in recent years, and this shows no sign of abating.

In November, Chevron said it would buy 5.23 million greenhouse gas offsets to make up for the under-performance of its Gorgon carbon capture and storage project, estimated by S&P Global Platts to cost almost $100 million.

Chevron did not specify where it would source the offsets but said in its environmental performance report that they would include Australian Carbon Credit Units, the price of which has rallied strongly in recent months.

Amid a flurry of pledges to hit net zero emissions by 2050 have pushed up ACCUs by 180 per cent last year.

Australia’s federal government is also likely to be a major buyer of carbon offsets, with Prime Minister Scott Morrison announcing last year net zero by 2050 would be partially achieved through the contracts.

But the scheme is controversial. Advocates for strong climate action say offsets distract from the need to reduce emissions, while many projects that offset emissions can take years to counter the initial pollution.

Still, BNEF expects the market will continue to grow, though it will be bumpy.

“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,” said Kyle Harrison, head of sustainability research at BNEF and the lead author of the report.

“If done correctly, their patience could be rewarded with a market valued at more than $US550 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.”


Tags: BNEF, Carbon Credits, NetZero
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