A new focus on environmental, social, and governance (ESG) challenges is generating predictions that global transactions in carbon credits will jump from the current level of $320 million to over $300 billion.
The World Bank’s recent study has found that the voluntary market carried out transactions equalling $320 million in an effort to reduce its emissions. The voluntary market refers to companies that do not have an obligation to offset their emissions. The amount recorded equals 1% of the regulated market. The regulated market is guided by public policies that embody individual countries’ initiatives and the UN.
Clarissa Lins, the founding partner of Catavento Consultancy, "With the strengthening of the ESG agenda around the world, the voluntary market could surpass US$300 billion by 2050." The Catavendo Consultancy specialises in corporate sustainability projects. Lins suggests that in order for such figures to be achieved, new carbon offsetting products need to have both the same level of technical quality and credibility required in regulated markets and that projects need to be traceable, auditable and credible.
Factors like the type of project, the region a project is located and the available volume of carbon can impact the amount paid for carbon credits. For example, credits generated from projects like hydroelectric plans are valid in renewable energy efforts. This type of project can, however, create environmental and social issues caused by the plant’s construction and impact flora and fauna in the region. Less attractive credits like these tend to cost less.
Alternatively, well-structured work that involves reforestation of native species in the Amazon is significantly more valued on the market. These projects can be carried out by local communities and promote sustainable development in the region. These types of projects are limited, which directly impacts prices.
Prices vary between $2 and $8 currently per ton of CO2 equivalent, according to Felipe Bittencourt, CEO of Way Carbon, one of the pioneer companies in the sector in Brazil. The private sector, which is accustomed to costs being more predictable, is displeased by the lack of transparency in the pricing of carbon credits.
It is hoped that this lack of price transparency will not dissuade companies from undergoing ESG efforts. With the current ESG agenda, sustainability has become a priority for a lot of companies. Hopefully, these predicted amounts of carbon credit purchasing will be achieved and more companies will dedicate resources and time to carbon offsetting practices.