Carbon offset price could spiral

Carbon offsets could reach $120 per tonne by 2050, according to research company BloombergNEF (BNEF).

Conversely the price could be a third of that, depending 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, finds BNEF’s inaugural Long-Term Carbon Offset Outlook 2022.

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, 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.

Kyle Harrison, head of sustainability research at BloombergNEF and the lead author of the report, 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 $550bn 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.”

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