BNEF report finds carbon offset prices could climb 50-fold by 2050


BNEF report finds carbon offset prices could climb 50-fold by 2050


BloombergNEF, a strategic research provider, released its inaugural Long-Term Carbon Offset Outlook 2022, an annual analysis that will update the global carbon offsetting market trends and forecasts.

In the outlook, carbon offset costs could rise to an average of US$47 per tonne in 2050, if attempts to improve the quality of carbon credits are not sufficient. Double-counting, programs that do not genuinely yield additional carbon reduction or preventive benefits are issues yet to be resolved. Moreover, projects are faced with increasing risks caused by extreme weather.

In this scenario, drivers behind offsetting are corporations, rather than countries, with high-emitting and difficult-to-abate industries like heavy industry and aviation leading the way. BNEF projected that supply will be four times larger than demand in 2030, with many other corporations unwilling to invest in offsetting.

However, if the market is limited to only credible removal-based offsets (carbon capture, storage and direct air capture and storage), supply will not be able to keep up with rising demand, as businesses attempt to fulfill net-zero commitments. This will result in price increases in the near term, with prices remaining high for decades. In other words, credits with higher value in terms of carbon reduction and sequestration will bear higher costs. Prices might rise to US$224 per tonne by 2029 before decreasing to US$120 per tonne by 2050 in this scenario.

In this scenario, BNEF is factoring in the likelihood that technologies like direct air capture would mature and become widely deployed. In this situation, however, it is unlikely that supply will be able to fulfill more than 90% of demand.

BNEF’s research also puts out a “hybrid” scenario, based on the proposals made during talks of Article 6 of the Paris Agreement at COP26 in Glasgow. In this scenario, the market is altered to permit solely removal-based offsets for firms in the coming years. The market then transforms over time, with countries being the dominant users rather than companies. Prices would hit US$48 per tonne in 2030, then rise substantially to a high of US$217 per tonne in 2030 before gradually declining to US$99 in 2050.

The BNEF warns that, whatever occurs, countries and firms should be prepared to face “teething challenges” and to prioritize carbon reductions over offsetting, as recommended by climate science.

The BNEF research comes just days after the Financial Times published new data from S&P Global Platts showing that the price of nature-based offsets (forestation and wetland restoration) surged more than threefold between June 2021 and January 2022. The current average price is roughly US$14.40.

In terms of the governance body for the carbon market, Mark Carney, former Governor of the Bank of England, launched Taskforce on Scaling Voluntary Carbon Markets to evaluate existing voluntary offsetting programs and identify key barriers to scaling them up. In 2021, Carney set up Glasgow Financial Alliance for Net Zero, which represents 450 major financial institutions controlling assets over US$130 trillion. There is also the Voluntary Carbon Markets Integrity Initiative (VCMI), which is currently advising corporations on how to negotiate the market rather than providing market governance.

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