Three scenarios for the 2050 carbon offset market

BNEF’s study on carbon offset prospects

(Sustainabilityenvironment.com) – A market of 550 billion dollars by 2050 the carbon offset can help the ecological transition or expose the planet even more to the climate crisis. Depending on which road is traveled, it can become a simple – and useless – green make-up with prices lower than 50 dollars per ton, or help reduce CO2 emissions with values around 120 $/t. With carbon offsets increasingly at the heart of international climate change strategies, BloombergNEF anticipates the possible scenarios of carbon offsets from today to the middle of the century.

What will determine prices depending on the carbon offset calculation

On the one hand, the availability of quotas, so which projects and interventions count as carbon offsets. On the other hand the profile and the number of those who want (or must) buy.
If all types of compensation continue to be allowed, including those that avoid emissions that would otherwise occur [instead of removing them, ed.], the market will be overloaded with largely worthless credits,BNEF notes. By limiting the market only to offsets that “remove, store or seize carbon, there will be insufficient supply to keep pace with demand, causing significant short-term price increases and damaging liquidity. If the market evolves primarily to help countries reach their climate targets rather than companies – a possibility outlined at COP26 – it will alleviate this supply deficit”.

Three possible scenarios

There are three possible scenarios. In what is called the “voluntary market“, the definition of carbon offset remains very similar to today. There are no rules and supply is 4 times greater than demand in 2030, and still 30% higher in the middle of the century. Prices reach 11 and 47$/t respectively, covering about 10% of global emissions today (5.2GtCO2e in 2050).

The Science Based Target Initiative (SBTI) scenario – named after the initiative that today sponsors it – limits carbon offsets, opening only to reforestation and emerging technologies such as direct air capture (DAC)offsets that subtract CO2 instead of avoiding emissions. The squeeze in the short term is drastic and makes prices soar to even $224/t, and the scarcity continues even in 2050 although reduced. They will settle at 120 dollars per ton in the middle of the century.

These prices would alleviate concerns about the quality of offsets and could also push companies to focus more on reducing their gross emissions, as offsets would be too expensive,” BNEF argues. “However, this scenario emphasizes how terrible the supply deficit could become in a world of only removal”.

The third scenario is a hybrid of the first two: a gradual evolution from today’s voluntary reality to an offset market populated only by compensation for CO2 removal, and for states more than for companies. A development that requires a global market, more or less like the carbon market envisaged by the Paris Agreement and approved at COP26. In this scenario prices rise to 48$/t in 2030, soaring to 217$/t in the 1930s and settling to 99$/t in the middle of the century.

While the price result of the hybrid scenario is more ideal for all parties involved, it assumes some important market developments in the coming years and is still an unpleasant leap from today’s prices”, which beat around 2.5$/t.

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