Carbon credits can help companies reach their net zero goals. However, what is the true cost of delaying your implementation strategy?
As more and more companies sign up to Net Zero Emissions by 2050 many businesses find that today they struggle to fully eliminate their emissions. However, as more and more companies purchase carbon credits as a strategy towards net-zero emissions we as an industry have forgotten about one simple economic principal…… Demand and Supply. With a limited supply of mature carbon offset/credit projects, it is anticipated that the demand for carbon credits could “increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. Overall, the market for carbon credits could be worth upward of $50 billion in 2030” McKinsey.
A voluntary market for carbon credits helps finance climate-action projects. These projects contribute to biodiversity protection, pollution prevention, public-health improvements, and job creation. As we have seen more Governments from around the world commit to net zero emissions, we now need a voluntary carbon credits market that is LARGE, transparent, verifiable, and environmentally robust. Under the 2015 Paris Agreement, we have seen nearly 200 countries have endorsed the global goal of limiting the rise in average temperatures to 2.0 degrees Celsius above preindustrial levels, and ideally 1.5 degrees. To reach the 1.5 degree targets would require that global greenhouse-gas emissions are cut by 50 percent of current levels by 2030 and reduced to net zero by 2050.
However, what we have today is a complex market. Some credits have at best questionable carbon credit initiatives. Also, we have limited pricing data which makes it difficult for buyers to know whether they are paying a fair price and for suppliers to know how much buyers will ultimately pay for carbon credits.
To meet our net-zero target, companies will need to reduce their own emissions and provide transparency to key stakeholders via measuring and reporting.
One way for a company to address their emissions goals is to purchase carbon credits. Carbon credits are certificates for the number of greenhouse gases that have been kept out of the air or removed from it. Carbon credits are categorized into four categories: avoided nature loss (deforestation); nature-based sequestration (reforestation); avoidance or reduction of emissions (methane from landfills); and technology-based removal of carbon dioxide from the atmosphere.
Over recent years this market has grown significantly and according to McKinsey, in 2020, buyers retired carbon credits for approximately 95 million tons of carbon-dioxide equivalent (MtCO2e), which would be more than twice as much as in 2017.Moving forward, McKinsey estimates that annual global demand for carbon credits could reach up to 1.5 to 2.0 gigatons of carbon dioxide (GtCO2) by 2030 and up to 7 to 13 GtCO2 by 2050.
New projects are anticipated to ramp up at an unprecedented rate as there is a long lag time between the initial investment and the eventual sale of credits. As we predict a supply shortage for mature credits in the future, we believe there will be an increase in price going forward. As we have seen in the Australian Carbon Credits Units (ACCU) Spot price over the last 6 months an increase of $16.30 to $19.00 per tonne offset. In a recent Carbon Market Outlook study by Renew Economy, they believe the CO2 offset prices could reach $45/t by 2030.
So, the advice we are providing our clients is to hedge NOW and sort the rest out later as prices are going up!
To find out how Super Smart Energy can help your business, contact us today.