BNEF: Carbon offset prices set to increase 50-fold by 2050

BNEF is predicting "teething problems" as the market expands amid the net-zero movement

The research provider has this week published its first-ever Long-Term Carbon Offset Outlook, a report it will produce annually to track trends in the global carbon offsetting market and update forecasts.

According to BNEF, carbon offset prices could see a more moderate increase, to an average of $47 per tonne in 2050, if efforts to improve the quality of carbon credits are not sufficient. Persistent issues include double-counting and schemes which do not actually generate additional carbon reduction or prevention benefits. There is also the increasing risk of projects being affected by extreme weather.

In this scenario, demand for offsetting is led by corporations – primarily high-emitting and hard-to abate sectors such as heavy industrials and aviation – rather than nations. Supply, BNEF is predicting, would be four times greater than demand in 2030, with many other corporates reluctant to invest in offsetting.

However, if the market is restricted to just credible removal-based offsets, there will not be enough supply to keep up with surging demand, as corporates strive to meet net-zero targets. This will cause near-term price hikes, with prices that remain high in the coming decades. In short, credits that are worth more in emissions removal and sequestration will also bear higher costs. In this scenario, prices could reach $224 per tonne by 2029 before falling to $120 per tonne in 2050.

BNEF is accounting, in this scenario, for the possibility that technologies such as direct air capture may mature and be widely adopted. Nonetheless, it does not believe that supply will be able to meet more than 90% of demand in this scenario.

BNEF’s report also puts forward a “hybrid” scenario, based on some of the ideas floated during discussions of Article 6 of the Paris Agreement at COP26 in Glasgow. In this scenario, the market is shifted to permit only removal-based offsets for corporations in the coming years. Then, in time, the market shifts so that countries rather than companies are the primary users. In this scenario, prices would reach $48 per tonne in 2030 and dramatically increase to a maximum of $217 per tonne in the 2030s, before gradually falling to $99 in 2050.

Whatever happens, BNEF is urging nations and corporations to expect “teething problems” and to prioritise emissions reductions, in line with climate science, over offsetting.

The publication of the BNEF report comes just days after the Financial Times reported on new data from S&P Global Platts, revealing that the price of nature-based offsets had increased more than threefold between June 2021 and January 2022. The average price now stands at around $14.40.

The Taskforce on Scaling Voluntary Carbon Markets, Mark Carney’s initiative to take stock of existing voluntary offsetting schemes and identify key challenges to scaling them up, last autumn created a new governance body for the market. There is also, separately,  the Voluntary Carbon Markets Integrity Initiative (VCMI). At present, the Initiative is providing guidance to corporates looking to navigate the market rather than providing governance to the market.

Sarah George