A total surplus of 1.2 billion metric tons of carbon credits might flood the carbon market at short notice, according to an analyst from London-based Trove Research.
The analyst pointed out that there is a market surplus of 600 million tonnes of carbon credit. These credits have been issued but not yet retired and are enough to match market demand for roughly 3.5 years.
On top of the existing 600 million tonnes of supply, there are also 600 million tonnes of credits in the accounts of carbon project creators. These credits aren't registered in emissions databases yet but might flood the voluntary market if prices rise.
“There are 1.2 billion metric tons of carbon credits that can be issued today and delivered by current projects,” said Guy Turner, CEO and founder of Trove Research, adding that this can weigh on the market at certain points in time, perhaps causing volatility.
While the regulated carbon market has rapidly developed, the voluntary market has also seen a significant boost in trading volume. The volume in the voluntary market is expected to increase from $0.4 billion per year in 2020 to $25 billion in 2030 and $480 billion in 2050.
In 2021, carbon credits for about one billion tonnes of carbon dioxide were sold on the voluntary carbon market. There were, however, more vendors than purchasers. As a result, there is a supply surplus of old carbon credits, which is around seven to eight times the current yearly demand.
To sort out low-quality carbon credits, some governments are undertaking an assessment of their present carbon credit programs, while setting up new standards to assure the quality and dependability of carbon credits.
In addition, investors must evaluate the credits they want to purchase based on a set of criteria, in order to avoid double-counting credits or purchasing credits that cannot generate meaningful offsets.
Despite considerable skepticism regarding the effect of carbon credits in offsetting footprints, many projects rely on them to take off and reduce emissions.
Investing in projects that remove carbon has become a trend now. Tech giants have been pouring money into projects that support carbon capture and storage.
