The future of voluntary carbon markets

2021-03-08 00:00

In 2019, the voluntary carbon market mobilized $ 320 million to finance emission reduction projects, with an associated reduction of 104 million tons of CO2, the highest volume since 2010. 2020 was expected to be a great year for this market, largely led by demand from the aviation sector.

In 2019, the voluntary carbon market mobilized $ 320 million to finance emission reduction projects, with an associated reduction of 104 million tons of CO2, the highest volume since 2010. 2020 was expected to be a great year for this market, largely led by demand from the aviation sector.

Everything changed with the arrival of COVID-19. In February and March, there were voices that expressed concern about the possibility that, in the face of a crisis of this magnitude, companies could see their level of ambition reduced or, even, could back down from any of the commitments made.

This was not the case. Both during the first wave of the pandemic, and in the following months, companies have made the commitment to decarbonisation as one of the pillars towards a more resilient and fairer society. Many companies have continued to formulate new and ambitious commitments to fight climate change. Today, 30% of Fortune Global 500 companies already have carbon neutral, RE100, Science Based Targets, or net zero targets.

Offsets or compensation credits from carbon emission reduction projects are one more component in the list of options that companies can consider on their way to neutrality, once they have internally reduced their emissions to the maximum, since they allow offsetting those residual emissions that they are not yet able to eliminate completely. By offsetting these emissions with emission reduction projects recognized under internationally recognized standards and registries, companies contribute to internally valuing CO2, showing shareholders their commitment to transformation.
¿Where do voluntary carbon markets go?

The latest Ecoystem Marketplace report, “The State of Voluntary Carbon Markets”, which has become the industry benchmark in recent years, points to a transformation in demand in the voluntary market.
Although in 2019 the volume of transactions in renewable energy projects was higher than the volume in forestry and land use projects, the price of offsets associated with nature-based solutions (NBS) was more than three times higher. The price of offsets for this project typology also increased by approximately 30% in that year, a trend that is expected to continue in 2020 and 2021. We will also see new and innovative project typologies, such as blue carbon projects.
We are also seeing a convergence between some compliance markets and the voluntary market, since some compliance schemes, such as CORSIA in the aviation sector or the National Carbon Tax of Colombia, allow the use of high-quality carbon credits for compliance with the obligations, increasing the interest for loans from voluntary markets.
On the other hand, more and more companies, in addition to offsetting their broadcasts, are also seeking to insetting, through projects directly linked to their business and operations.

Although the voluntary carbon market is still a complex market, based on bilateral transactions and where there are no two identical projects, at Vertis Environmental Finance we think that over the next year we will see how the voluntary market is significantly transformed in terms of liquidity, transparency, and with new and innovative project typologies.


Paz Nachón
Head of Climate Action
Vertis

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