The voluntary carbon credits market has shrunk for the first time in seven years, falling 6 per cent in the first half of 2023, and demand on track to fall further, according to two of the top data providers including BloombergNEF.
Confidence ebbed as large corporates such as Nestle, Gucci reduced their purchases due to studies finding that several forest protection projects did not deliver promised emissions savings.
Data from consultancy Ecosystem Marketplace also showed a sharper fall of 8 per cent over the same period. Both providers’ data may be updated soon as offsets registries are revised.
Ecosystem Marketplace named the quality of carbon credits schemes an issue, with Stephen Donofrio, MD of Ecosytem Marketplace, saying:
“A number of negative studies on carbon credits caused enough concern for some companies to pause purchasing and wait for more guidance on what sort of credits they should buy.”
Laimonas Noreika, CEO and co-founder of HeavyFinance, said:
“As we witness a dip in the demand for carbon credits, it’s crucial to emphasise the power of impact investing and the role of innovative solutions that ensure quality over carbon credits and mitigate climate change.
Carbon credit schemes are not just crucial for combatting climate change, but also play a significant role in the lives of small farmers and communities, bettering their crops and increasing their profits, in turn enhancing their quality of life. This is not just about companies meeting environmental goals; it’s about safeguarding the future for generations to come.
While some are re-evaluating their carbon offset strategies, the carbon credit market should view this as an opportunity for transformation. For example, in the case of carbon sequestration via soil, employing and making visible the third-parties such as automated soil carbon measurement companies to measure changes in soil carbon stock in accordance with major international protocol for offsets from the likes of Verra, can improve accuracy and in turn boost confidence.
The studies that reveal flaws in carbon credit schemes underscore the importance of due diligence in the climate finance sector. We must continue to ensure transparency and accountability to promote how our investments truly make a positive impact.”
Until 2023, the voluntary carbon market had grown as companies increasingly came under shareholder pressure to adopt net zero policies.
The market was worth around $2 billion in 2021, and Boston Consulting Group and Shell jointly forecast in January that it could reach between $10 billion and $40 billion by 2030.
However, as demand slowed, prices of carbon offsets traded via Xpansiv market CBL, the world’s largest spot carbon exchange, fell by more than 80 per cent over the last 18-20 months.
Carbon credit certifier, Verra, says it will publish updated rules for the likes of forest protection projects in the third quarter.
Naomi Swickard, Senior Director at Verra, said negative press had unfortunately driven some companies to ask: “why would I do this and invest in something that might just result with being attacked in the press?” and pointed out how “in some cases, that is undermining corporate willingness to act on climate at all.”
For the carbon markets, an additional matter is that carbon market advisory bodies and regulators are limiting the scope of their use by firms.
The EU Parliament plans to ban the use of environmental claims solely based on carbon offsetting schemes from 2024, while the bloc’s draft carbon reporting standards require companies to report their carbon footprint before subtracting any carbon credits or avoided emissions.
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