We all know that the voluntary carbon market is about to explodes, or already explodes, depending on who you ask. The value of all these carbon credits reached $1 billion for the first time in 2021, and 2022 shows no signs of slowing down. Increased corporate commitments to reduce emissions and pledges of net zero have spurred demand growth.
A new report from BloombergNEF, “Voluntary Carbon Offset Demand Demystified,” dives into publicly available 2021 data from the Verra Carbon Registry to explore underlying trends in offset demand. (Verra accounts for 80% of voluntary carbon offset supply in the market, or approximately 129.7 million offsets.) The BNEF report looks at 80.1 million offsets withdrawn, or 50% of the market in 2021 that had buyers. It analyzes who was buying, how much, what region, types and ages of credits — and makes predictions for the future of the market. Much of the report confirms previous findings from other market surveys, but here are four noteworthy new pieces of information.
1. We don’t know the buyers
According to the BNEF report, more than 28,000 offset purchases were recorded in 2021. Only 6,200 of these transactions (representing the 80.1 million offsets studied by the report) revealed who the specific buyer was. That’s less than a quarter of the activity, and even less considering that many buyers listed were only identified with codenames.
Interestingly, transactions where buyer information was not disclosed were, on average, not significantly lower in quality than those where buyer identities were listed, according to the BNEF analysis.
For example, the identity of the buyer was disclosed for approximately 42% of projects offering co-benefits such as biodiversity improvements, economic benefits for local communities, etc. This was about the same percentage as co-benefit projects that did not specifically identify the buyer. Transactions involving older offsets, generally considered lower quality on criteria such as permanence or additionality, had a 50/50 chance of revealing a buyer.
Buyers need to start shifting their focus from avoided credits to removal offsets.
What is the purpose of secrecy? Disclosure of sustainability goals and progress sometimes seems like a losing situation for companies – if they talk about what they’re doing, they get hammered for not doing more, and if they don’t talk about their actions, they get hammered for the appearance of doing nothing. Because offsets have been criticized form of environmental action, this could be one of the reasons why some companies choose to remain silent.
2. Consumer pressure drives the market
The BNEF report notes that two-thirds of disclosed buyers from 2021 were business-to-consumer (B2C) businesses, and most of the top offset buyers were consumer-facing brands with household names – Delta Airlines, Shell, Volkswagen and Audi all crack the top 10.
An estimated 64% of offsets withdrawn in 2021 came from B2C companies, with the rest going to B2B companies. Many airlines, for example, allow consumers to purchase carbon offsets directly with their ticket to offset the carbon emissions of their trip. The BNEF report concludes that most purchases disclosed last year came from consumer-facing brands, much of the pressure to buy offsets stems from a desire to appease consumer preferences as opposed to pressure operational to respect a climate commitment.
Another point of proof for this argument is that cryptocurrency companies, sharply criticized over the past year due to their carbon-intensive processes, have been the biggest buyers of offsets in 2021.
Some crypto companies use offsets as part of their business model. For example, according to the BNEF report, Toucan Protocol was by far the top buyer with 16.6 million offsets in 2021. Toucan Protocol buys low quality offsets to turn them into tokens to be traded on its “carbon bridge” blockchain ledger. In May, will see announced it will not allow carbon offset purchases from its ledger to be tokenized by the crypto sector, in an effort to avoid double counting. But he is open a public comment period to better assess how it can work with third-party crypto companies focusing on anti-fraud measure.
3. Companies rely on vintage offsets
According to BNEF analysis, era offsets, or credits for projects that took place years ago, are popular with businesses. The report found that more than half of all offsets withdrawn in 2021 were produced before 2015, and the most common were from 2014. Many companies, including Delta, have achieved their carbon neutral claims by purchasing these types of offsets. . But Delta was also the only company among the top 10 buyers to purchase offsets produced in 2021. Overall, less than half a percent of offsets retired in 2021 were produced in the same year.
Vintage credits are generally less expensive. They’re also generally lower-grade, meaning they don’t come with co-benefits and emissions-reduction claims don’t carry as much weight. Some represent emission reductions that have already taken place but have simply not been financially rewarded, belying the promise that credits will fund new projects to tackle climate change.
The BNEF report also conjectures that vintage credits are credits that have had difficulty finding takers due to their degraded quality. Carbon registries and efforts such as the Voluntary Carbon Markets Integrity Initiative call for better disclosures and regulations regarding the sale of vintage offsets.
4. Companies are behind on removal compensation
Two types of offsets made up most of the market in 2021, according to the BNEF report – avoided deforestation (47.6% of withdrawals) and energy production (43% of withdrawals). Both of these categories of credits fall under the category of avoided emissions, which means that these projects did not remove carbon from the atmosphere, but rather prevented the possibility of new carbon being released.
Avoided deforestation credits have been critical to protect forests that were never really in danger of being cut down. The BNEF report also indicates that power generation credits do not pass the additionality test, in part because technology costs have fallen and projects no longer need financial support from the electricity market. credits. Although geothermal, solar and hydro power generation credits were supposed to be largely abandoned by Verra as of January 2020, they still constitute a large part of the credits withdrawn each year, which will have to change.
According to the BNEF report, buyers need to start focusing on avoided credits towards removal offsets related to projects such as direct air capture and reforestation to have a real impact on the climate crisis. But these types of offsets are much more expensive.