Ten-fold increase in carbon offset cost predicted

The cost of offsetting corporate carbon emissions needs to increase ten-fold to drive meaningful climate action, says a landmark report by UCL and Trove Research.

Current prices of carbon offsets are unsustainably low and need to increase significantly to encourage greater investment in new projects that remove carbon from the atmosphere, finds new research from UCL and Trove Research.

If prices stay low companies could be accused of greenwashing their emissions, as real emissions reduction and carbon removals are more costly than today’s prices.

Prices of carbon credits used by companies to offset their emissions are currently low, due to an excess of supply built up over several years, together with issues over whether payments for credits really result in additional reductions in carbon emissions. According to the research, titled Future Demand, Supply and Prices for Voluntary Carbon Credits – Keeping the Balance, without this surplus, prices would be around $15/tCO2e higher, compared to $3-5t/CO2e today.

The research shows, however, that the surplus will not last forever, with demand for carbon credits expected to increase five to ten-fold over the next decade as more companies adopt Net Zero climate commitments.

This growth in demand should see carbon credit prices rise to $20-50/tCO2e by 2030, as more investment is required in projects that take carbon out of the atmosphere in the long-term. These prices are needed, for example, to incentivise landowners to forgo income from agriculture and instead preserve forests and plant trees. With a further increase in demand expected by 2040 and 2050, carbon credit prices would rise in excess of $50/tCO2e.

If governments successfully reduce emissions through domestic policies, fewer carbon credits will be available to businesses through the voluntary market. This would increase carbon credit prices further, potentially reaching $100/tCO2e.

Guy Turner, CEO of Trove Research and lead author of the study, said: “It is encouraging to see so many companies setting Net Zero and Carbon Neutral climate targets. What this new analysis shows is that these companies need to plan for substantially higher carbon credit prices and make informed trade-offs between reducing emissions internally and buying credits from outside the company’s value chain.”

Co-author of the study Professor Mark Maslin (UCL Geography) said: “Customers, clients, investors and employees all want companies to become more sustainable and achieve net zero carbon as soon as possible.  Even with ambitious carbon reduction plans there are some company emissions that are currently unavoidable and this is where carbon offsetting is essential.  But everyone wants a carbon credit system that is reliable and really does remove carbon from the atmosphere – what this groundbreaking report shows is that this will cost significantly more than companies are paying now.”

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