Purchasing high quality carbon credits is an effective way to contribute the transition to a low-carbon, climate secure world. A carbon offset represents one tonne of carbon dioxide equivalent (tCO2e) that hasn’t been emitted into the atmosphere. Offsets come from on-the-ground projects and activities to reduce carbon emissions; for example, by switching to more sustainable fuel sources, or by planting trees that soak up CO2 from the air. In 2018, the carbon market reached 144 billion euros.
Source: Climate Active
However, prices of carbon credits used by companies to offset their emissions are currently low, due to an excess of supply built up over several years, together with issues over whether payments for credits really result in additional reductions in carbon emissions. According to the research, titled Future Demand, Supply and Prices for Voluntary Carbon Credits – Keeping the Balance, without this surplus, prices would be around $15/tCO2e higher, compared to $3-5t/CO2e today. Prices usually range from less than $0.50/tCO2e to more than $50/tCO2e. Wind offsets from Asia in 2016 were transacted at an average of $0.7/tCO2e, afforestation/reforestation from Africa transacted at an average of $6.7/tCO2e.
This growth in demand should see carbon credit prices rise to $20-50/tCO2e by 2030, as more investment is required in projects that take carbon out of the atmosphere in the long-term. With a further increase in demand expected by 2040 and 2050, carbon credit prices would rise in excess of $50/tCO2e.If governments successfully reduce emissions through domestic policies, fewer carbon credits will be available to businesses through the voluntary market. This would increase carbon credit prices further, potentially reaching $100/tCO2e.