What is the impact of high carbon credit prices?

During the second half of 2021 we saw a strong increase in the carbon credit prices.

 

This happened for a few reasons such as the growing interest of the public, shareholders and investors in the ESG agenda, and the movement made by big corps to set net zero goals, which has brought new entrants to the Voluntary Carbon Market across the globe.

Putting this fact in numbers, the value for the 2021 voluntary carbon market breached $1billion in November 2021, around three times the total of 2020. With more demand and a limited supply of carbon credits, prices increased fast.

But what we can expect in terms of outcomes? In his recent 2022 Carbon Credit Crunch Report, Sylvera, highlighted some interesting trends we will might see during the next years. We pointed a few below.

The importance to act now

High prices of carbon credits would make decarbonisation more expensive, complex and risky for organisations and incentivise them to decarbonise now, not later.

Also when the cost of offsetting emissions increases significantly, it is rational for organisations to seek ways to reduce greenhouse gas emissions across their business.

This scenario puts sustainability closer to these organisations’ core strategic decision-making.

Nature Based Credits getting more Attention

The inventory of energy-based credits, historically the cheapest carbon credits on the market, is dropping rapidly. As a result, the market will shift the efforts on credits from agriculture, forestry, and other land use projects. These Assets typically trade between 2 and 4 times the price of energy credits. In other words, buyers are forced to compete for more expensive, nature-based credits.

Might increase credit quantity, quality and project innovation

The actual scenario incentivise developers to set up higher quality projects and support innovation. This could create an environment of significant financial reward for discoveries of new carbon sequestration methods and technologies.

In other words, as credit prices climb, conserving and maintaining forests becomes the rational course of action. Higher prices make more ambitious, larger and higher quality projects possible and make a wider range of activities to protect forests become financially viable.

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