BNEF: Improved standards needed for carbon credit prices

In its 2024 Carbon Market Outlook, an influential analyst report highlights the crucial role of quality standards in driving the prices of carbon offsets within the Voluntary Carbon Market (VCM). The report underscores that without the implementation of more robust and stringent standards, the current stagnation in carbon offset prices is likely to persist.

The analysis quantifies the potential impact of adopting more rigorous standards on the VCM, emphasizing the correlation between quality assurance and market dynamics. Historically, the VCM has operated with varying degrees of quality assurance, leading to concerns regarding the credibility and integrity of carbon offsets traded within the market.

By quantifying the potential impact, the report provides stakeholders with valuable insights into the economic implications of adopting enhanced standards. It highlights that a shift towards more stringent quality standards could bolster investor confidence, enhance market transparency, and ultimately drive demand for high-quality carbon offsets.

Moreover, the report sheds light on the broader implications of stagnant carbon offset prices within the VCM. It underscores the significance of a healthy and robust carbon market in incentivizing emission reduction initiatives and mobilizing climate finance. Without adequate price signals reflecting the true value of carbon offsets, the effectiveness of the VCM in driving emissions reductions and supporting climate action could be compromised.

A Carbon Market Outlook for 2024 published this week by Bloomberg New Energy Finance (BNEF) warns the price of carbon offset credits could remain as low as just $13 a tonne by 2030 without better regulation and standards across the sector.

Under this scenario, the supply of credits is expected to outstrip demand, with the resulting gap leading to prices at the end of the decade “not much higher” than today’s levels.

However, if a “robust, universal definition of high quality [offsets]” is established, credit prices could rise to $20 per tonne by the end of this decade, the analyst said.

Meanwhile, credit prices could skyrocket to $146 a tonne by 2030 if the voluntary market is restricted to only carbon removals, such as reforestation, regenerative agriculture, direct air capture, and bioenergy and carbon capture and storage projects, according to BNEF.

Concerns are mounting that carbon markets could fail to deliver on their objective of providing a vital source of climate finance for projects that can cut emissions, enhance climate resilience, boost biodiversity, and remove greenhouse gases from the atmosphere, in the wake of a string of scandals over projects failing to deliver promised emissions reductions and an ongoing row between governments over the rules governing international carbon trading.

At the COP28 Climate Summit in December, countries failed to agree on rules which could have raised standards across voluntary and compliance carbon markets. Discussions will be picked up again at the COP29 Climate Summit in Baku, Azerbaijan later this year.

Governance and standards bodies across the VCM are working to restore confidence in the sector through the adoption of a series of new standards designed to provide more robust evidence projects are delivering promised emissions savings.

Elsewhere in its report, BNEF predicted carbon prices across compliance markets around the world will “inch closer together” as more mature schemes – like the EU’s Emissions Trading Scheme (ETS) – see their prices cool and newer programmes record new highs.

BNEF forecasts carbon prices in the EU will average €71 per ton this year, down from €85 in 2023, before rallying towards €149 per ton in 2030 as the supply of allowances is restricted.

It also notes that compliance markets could soon take on more of the characteristics of voluntary markets, given the emergence of compliance programmes that could allow for the use of carbon removal credits.

Established schemes, such as in the EU and the UK, avoid carbon offset credit usage largely because of concerns over the integrity of such projects. But newer markets, including those in the US state of Washington, as well as those in mainland China and Mexico, have agreed to allow some offset credit usage to fulfil compliance obligations.

Meanwhile, the EU is exploring if carbon removal credits could be integrated into it ETS.

The report is published just a week after data from the London Stock Exchange Group revealed the UK’s compliance market saw its value drop by 22 per cent in 2023 in response to a weakening green policy environment.

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