Cost to offset 1 ton of co2

We use cookies and other data for a number of reasons, such as keeping FT Sites reliable and secure, personalising content and ads, providing social media features and to analyse how our Sites are used.

Background

COP26’s conclusion in November 2021 signaled to governments and investors that a zero-emissions world is on the horizon.

The Glasgow Climate Pact, negotiated by nearly 200 countries, radically cuts back coal usage, eliminates fossil-fuel subsidies and commits governments to carbon emissions reductions.

While many argue that the pact is overly ambitious without a radical transformation of industrial sectors and consumption, to others, it is a starting point. Carbon and its pricing will continue to gain significant importance as countries and companies seek to reduce carbon emissions by purchasing carbon offset credits.

The issue

The market for carbon offsets is highly dependent on worldwide regulatory efforts to hold countries accountable for their climate impacts.

BloombergNEF examines potential market outcomes based on different regulatory scenarios for carbon offsets, defined as verified reductions in climate-warming gases used to compensate for emissions that occur elsewhere.

View all of our commodities solutions

Research results indicate that an oversupplied voluntary market would produce prolonged growth in prices. On the opposite end of the spectrum, a carbon-removals-only scenario could cause a pricing surge of as much as 3,000% by 2029.

The COP26 climate summit inspired a global push to reduce emissions. However, regulation of carbon-cutting projects is still a new concept plagued by “greenwashing” — cultivating a false impression or misleading information about how a company’s products are environmentally friendly. Only a small fraction of projects actually remove carbon dioxide from the air, and rules fluctuate from country to country, with carbon emissions often unregulated by any recognized body.

“The price of offsets could rise significantly, creating a $190 billion market as early as 2030,” BloombergNEF analysts wrote in a 2022 market outlook. “In other scenarios, prices could remain relatively flat for the next few decades, most likely preventing the market from ever really getting off the ground.”

According to data from the New York Mercantile Exchange, Global Emissions Offset CBL futures for January 2022 traded at $7.53 a ton on Jan. 25. Contracts expiring in July 2025 were last at $8.89.

The emissions offset futures curve is in contango, with later-dated prices more expensive than near-dated ones. The curve has shifted higher from six months ago, suggesting futures trading above $9 in late 2025.

There are three basic scenarios in play, dependent on how carbon offsets are regulated:

Voluntary markets. The scenario predicts that offsets will be “unsustainably cheap” as supply grows from efforts to prevent deforestation, spur reforestation and sell clean cookstoves. If left unregulated, supply will flourish, and prices will grow slowly over time to $47 a ton in 2050. While low prices may be desirable for offsets buyers, other investors such as developers, banks and brokers will find little incentive to support the market.

Carbon removal. This scenario contains the best outlook for prices because companies are only allowed to purchase credits from the removal of CO2 to hit their sustainability targets, creating a limited supply. As a result, prices are projected to rocket 2,975%, to $224 a ton, in 2029 before tapering off to settle at $120 in 2050. This market would change industrial behavior on all levels as the world races to decarbonize.

Hybrid. This final scenario combines the first two scenarios and shifts the removals-only scenario-pricing shape to 2030, with a similar decline over time. Demand for carbon offsets remains consistent in all three scenarios, making the supply side essential to the final result.

Tracking the carbon trading market

For more information on this or other functionality on the Bloomberg Professional Service, request a demo with a Bloomberg sales representative. Existing clients can press on their Bloomberg keyboard.

New York and London, January 10, 2022 – Prices for carbon offsets – verified emissions reductions equivalent to one ton of carbon each – could be as high as $120/ton or as low as $47/ton in 2050, according to research company BloombergNEF (BNEF). The outcome will mostly depend on what types of supply are eligible to meet the rapidly expanding universe of sustainability goals, as well as who the primary customers are in the market, finds BNEF’s inaugural Long-Term Carbon Offset Outlook 2022.

Should all types of offsets continue to be permitted to hit net-zero goals, including those which avoid emissions that would otherwise occur, the market will be oversupplied with largely worthless credits, thereby driving down prices and attracting criticism around quality. A jump in corporate demand, specifically from heavy-emitting industries with no alternatives to offsets, could bridge this gap and lead to moderate increases in prices, but many companies are hesitant to invest further in offsets.

Conversely, if the market is restricted to just offsets that remove, store or sequester carbon to achieve net-zero targets, there will be insufficient supply to keep up with demand, causing significant near-term price hikes and damaging liquidity. If the market evolves to primarily help countries achieve their climate targets rather than companies – a possibility outlined at COP26 – it will soften this supply shortfall. Yet, this is still not ideal for the long-term success of carbon offsets.

Kyle Harrison, head of sustainability research at BloombergNEF and the lead author of the report, said: “There will be growing pains in the coming years as stakeholders try to understand how to sustainably grow the carbon offset market and determine who it will serve. If done correctly, their patience could be rewarded with a market valued at more than $550 billion by mid-century. Suppliers, buyers of offsets, traders and investors will need to balance what is idealistic and what is realistic. Otherwise, they risk the offset market burning out just as it’s getting started.”

In the report, BNEF models supply, demand and prices for carbon offsets under three scenarios: a voluntary market scenario, a removal scenario and a hybrid scenario. Offset prices range from $11-$215/ton in 2030, up from just $2.50 on average in 2020, before narrowing to $47-$120/ton in 2050.

The voluntary market scenario assumes the offset market remains similar to how it looks today. Demand comes from corporations with sustainability goals and surges to 1 billion metric tons of carbon dioxide equivalent (GtCO2e) in 2030 and 5.2GtCO2e in 2050 – the latter of which is equivalent to 10% of global emissions today (51.1GtCO2e). All types of supply are permitted, including offsets that avoid emissions rather than removing them, like clean energy and avoided deforestation. Due to the lack of regulation, supply is nearly four times greater than demand in 2030 and is still 30% greater in 2050. The supply glut keeps prices down to just $11/ton in 2030 and $47/ton in 2050.

Low prices give companies flexibility to meet their sustainability goals, but subsequently undermine their ability to drive true additional decarbonization, inviting criticism for a lack of quality. Low prices also provide developers and traders with little financial incentive to participate, meaning the market never takes off and is relegated to back-alley deals for low-quality credits.

The removal scenario limits supply to removal offsets like reforestation and nascent technologies such as direct air capture to achieve net-zero goals. Activity is still driven by corporations, but only for offsets that store or sequester carbon, rather than avoiding emissions that would otherwise happen, which are not permitted for achieving targets. This is an outcome pushed by a number of groups.

The removal scenario addresses the supply glut seen in the voluntary market scenario, but may be overcompensating: the market is undersupplied by 2029 and prices shoot up to $224/ton. By 2050, even with technologies like direct air capture becoming more widely adopted, there is still only enough supply to meet less than 90% of demand and prices sit at $120/ton. These prices would alleviate concerns around offset quality and could even push companies to focus more on reducing their own gross emissions, as offsets will be too expensive. However, this scenario underscores how dire the supply shortfall could become in a removal-only world for hitting targets. This is particularly true in early years when technology-based removal barely exists, relegating offsets to a niche, luxury product.

The hybrid scenario looks at a gradual evolution of the offset market, from the voluntary market today, to a removal-only market for corporations and finally to a removal-only market primarily for countries, rather than companies, by mid-century. This assumes that a global carbon market allowing countries to buy and sell verifiable emission reductions – similar to what is being discussed under Article 6 at COP26 – overtakes the current company-run market. Prices rise to a manageable $48/ton in 2030 before shooting up to $217/ton the following year and gradually dropping to $99/ton in 2050. While the price outcome of the hybrid scenario is more ideal for all parties involved, it assumes some major market developments in the coming years and is still an unpalatable jump from today’s prices.

“No matter the scenario, corporations and other entities looking to buy carbon offsets shouldn’t expect them to be a get-out-of-jail-free card for much longer,” said Harrison. “As the market matures – which it will – and processes are put in place to make offsets resemble a traditional commodity, prices will inevitably rise and companies will need to prioritize their gross emissions more than ever.”

BNEF updates its historical offset supply and demand data monthly and its long-term outlook annually.

(On January 21, 2022 BNEF updated the release and changed the name of “the SBTi scenario” to “the removal scenario”.)

How much does it cost to offset a ton of CO2?

How much does it cost to offset 1 tonne of carbon UK?

How much does it cost to offset a kg of carbon?

How much does it cost to offset 1 tonne of carbon Australia?