Carbon markets are a vital tool in the race to combat climate change. But for businesses outside the carbon market landscape, understanding these markets and why they matter can be challenging.
The World Bank recently released 2024’s State and Trends of Carbon Pricing-International Carbon Markets. The team at Thallo read it so you don’t have to.
What Are Carbon Markets?
Carbon markets allow companies and countries to buy and sell carbon credits, which represent the removal or reduction of one ton of CO2 from the atmosphere. Businesses can buy these credits to address their emissions by supporting projects like reforestation, renewable energy, and carbon capture technologies.
Key Trends for 2024
1. Increased Demand for High-Quality Credits
Businesses are becoming more discerning about the quality of carbon credits they purchase. Projects that have additional environmental or social benefits, such as protecting biodiversity or supporting local communities, command a 37% price premium over standard credits. This reflects the growing expectation for carbon credits to contribute to broader development goals beyond just reducing emissions.
2. Surge in Carbon Removal Projects
Technology-based carbon removal solutions, such as direct air capture and biochar, are gaining significant traction. In 2024, removal credits—particularly from high-tech solutions—were traded at an average of $200 per ton, compared to $5 to $25 per ton for traditional avoidance credits.
Why are tech-based removal solutions gaining traction? Corporations are increasingly seeking carbon removal credits because they offer greater additionality and permanence compared to traditional avoidance credits.
Unlike avoidance projects, which prevent further emissions (like renewable energy projects), carbon removal projects actively remove CO2 from the atmosphere. This makes them particularly appealing to companies with stringent net-zero targets, as removal credits are seen as more durable and essential for long-term carbon strategies.
For instance, Google, Microsoft, and Meta have invested in carbon removal solutions through the NextGen consortium, aiming to purchase 1 million tons of carbon removals by 2025. The surge in interest shows that companies are willing to pay a premium for these higher-quality credits, recognizing that carbon removal is a critical part of addressing global emissions.
3. Voluntary Market Value Drops but Shows Promise
The voluntary carbon market saw a sharp decline in value, dropping from $1,870 million in 2022 to $723 million in 2023. This drop was largely due to highly publicised media campaigns and concerns about the integrity of some credits. However, new standards from the Integrity Council of Voluntary Carbon Markets (ICVCM) are restoring confidence by ensuring that only high-quality projects can issue credits under their new Core Carbon Principles (CCPs).
4. Corporate Pledges on the Rise
Major corporations are stepping up their involvement in long-term carbon credit projects. For example, Google, Microsoft, and Meta formed the Symbiosis Coalition, which is committed to generating 20 million tons of CO2 reductions by 2030 through nature restoration projects. Similarly, the NextGen consortium aims to purchase 1 million tons of carbon removals by 2025 at an average price of $200 per ton. These long-term deals demonstrate a strong corporate commitment to funding high-quality carbon projects.
5. Addressing Scope 3 Emissions
A large gap remains for many companies when it comes to addressing Scope 3 emissions, which encompass the indirect emissions across their value chains.
A 2024 study found that 84% of companies are not on track to meet their net-zero goals, with the gap in addressing Scope 3 emissions being a major factor. Innovative credits, such as those from the Energy Transition Accelerator (ETA), are emerging to help businesses meet these complex challenges by funding clean energy transitions globally.
6. Legal Clarity for Carbon Credits is Crucial
The legal status of carbon credits is increasingly being clarified, with some jurisdictions classifying them as commodities and others as securities. Legal clarity is crucial because it builds trust, allowing businesses to confidently trade, invest in, and use carbon credits in their financial strategies.
Jurisdictions that are recognizing carbon credits as having property rights allow companies to trade them like any other asset, ensuring that credits have legal protections. This is essential for the growth and maturity of the carbon market, as it removes uncertainty for investors and buyers.
7. New Financial Products and Insurance for Carbon Markets
Emerging financial products, like insurance coverage for carbon credits, are helping to de-risk investments in carbon markets. Insurance against non-delivery, reversal, and invalidation risks is becoming more common, giving businesses peace of mind when investing in carbon credits. Companies like Kita and Oka offer protection for project developers and buyers, which is essential as the market grows.
Additionally, carbon credit ratings (See: Sylvera, Renoster and BeZero) are starting to be used more widely to assess the quality and risks of different projects, ensuring transparency and driving investments toward higher-quality credits.
Why Should Your Organization Care?
Even if your business isn’t involved in heavy industry or energy, engaging with carbon markets can be a valuable part of your sustainability strategy. Here’s why:
Offset Your Emissions: Carbon credits provide an opportunity to offset emissions that are difficult to eliminate, helping your business move toward net-zero goals.
Enhance Your Sustainability Reputation: By investing in high-quality credits, you can strengthen your brand’s reputation as a sustainable leader.
Stay Ahead of Regulation: As global regulations tighten, having a carbon offset strategy in place now will prepare your business for future compliance requirements.
Final Thoughts
The 2024 voluntary carbon market is evolving rapidly, offering businesses a powerful tool to offset their emissions while contributing to global development goals.
Whether you’re a small business or a multinational corporation, participating in carbon markets can enhance your sustainability efforts, align your operations with global climate goals, and position your organisation as a leader in the fight against climate change.
By staying informed about the latest trends and focusing on high-quality, impactful carbon credits, your organisation can make a real difference for the planet—and your bottom line.
