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Study: The green bond market will exceed supply for the next 30 years

The carbon market is booming, and that will not stop anytime soon. Our 8% green bond attracts investors like bees to honey. Those looking into carbon offsetting can be sure of one thing - carbon offsets are in huge demand and will stay that way in the future.
In fact, a new study suggests the green bond demand will exceed supply drastically by a factor of five, published recently by Quantum Commodity Intelligence.

Moreover, this carbon market surge will continue for the next 30 years, so much so that it will go over the supply under the carbon footprint reduction pledge in many tropical countries. The study has shown that the latter could help jumpstart additional carbon reductions.

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Corporates all over the globe are looking into carbon credits to offset their CO2 emissions, read our blog about the Netflix Netzero pledge for instance. But, essentially, the demands are much bigger than the supply, and they will stay that way for at least eight years, as published in the report by analysts Trove Research. It is no surprise since countries have joined the joint call to curb carbon emissions immediately through deforestation and other zero-emissions projects.

Study: The green bond market will exceed supply for the next 30 years-1

Furthermore, depending on various scenarios, by 2050, the demand for carbon offsets will exceed the needs by 50% to 400%. Global consultancy firm Ernst & Young published a report in which they stated the price of offsets will triple by 2035 and increase sixfold by 2050.

The Massive Surge of Carbon Credits

Pedro Barata, the senior climate director at Environmental Defense Fund that financed the study, said:

"The soaring global demand for carbon credits from companies unlocks incredible potential and necessary resources for tropical forest countries to achieve their climate commitments and maybe even go above and beyond."

"Companies in the voluntary carbon market can contribute their fair share to global climate action, and countries can reap the benefits with more ambitious, but attainable, emissions targets," Barata added.

It's important to note that the study based on twelve tropical forest countries assumes that over a third of all carbon credits demand is associated with these countries. In addition, the study suggests that the below 60% carbon removal goes to tropical countries and all CO2 reductions to the VCM.

Green Bonds Are a Massive Help to CO2 Reduction Pledges

In fact, the voluntary carbon market might be a massive help for tropical countries to handle their nationally determined contributions (NDCs) and reach their CO2 reduction pledges aligned with the 2015 Paris Agreement.

Therefore, the study report also dealt with the corresponding adjustments (CAs) issue, published Quantum Commodity Intelligence.

The problem at the center of the UN negotiators' debate is how to avoid the double-counting emissions issue while the voluntary carbon market is still under regulations construction. The VCM will be a part of Article 6.4 of the Paris Agreement instead of the
UN Clean Development Mechanism (CDM). The latter gave countries the option to issue CAs-backed carbon credits.

Study: The green bond market will exceed supply for the next 30 years-2

There are two ways in which UN negotiators view the double-counting emissions issue. One approach is issuing credits to projects that would help countries push their CO2 emissions target accordingly if transferred beyond the borders. That would allow them to avoid the double-counting problem.

However, some criticize the abovementioned approach, stating that it would drive the price up to almost unimaginable levels. Therefore, logically, there wouldn't be many corporates looking to invest in VCM projects abroad.

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The supporters of the approach also state that companies should not get the chance to claim net-zero emissions and use ESG funding on double-counted carbon credits.

The report states: "To date, most of the debate around the use of corresponding adjustments for voluntary purposes has assumed that the voluntary market would not have a material impact on host country emissions.

"This research suggests the opposite is likely to be true when the long-term growth in demand for voluntary carbon credits is factored in."

The Demand for Carbon Offsets is Skyrocketing

The study expects the demand for carbon offsets to reach 101 billion by 2050. However, the more realistic view sees internal budgeting influencing the total corporate demand.

"Logically, governments would prioritize the lowest cost forms of mitigation first in achieving their NDCs, so emissions reductions beyond their NDCs would be more costly. In tropical forest countries, this may mean foregoing more valuable revenue from agricultural activities on deforested land", as published in the study.

"Emission reductions in excess of a host country's NDC, which could carry a corresponding adjustment, would therefore be more expensive to the buyer. The appetite to pay for these has yet to be tested in the voluntary corporate sector", concludes the report.

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