Report: Carbon Markets Contribute to Global Climate Action Efforts, But Need a Boost

The voluntary carbon offset market is helping governments and companies around the world reach their climate action goals for this decade, according to a recent report.

Nevertheless, challenges remain: The volume of carbon offsets sold last year actually declined from 2015. And we could soon see a more dispersed market, as half of those offsets were purchased in Asia -- a substantial increase from prior years.

The carbon offset market has its share of supporters and critics. For businesses that are scrambling to find ways to meet their climate change mediation goals, however, this study could spark interest: It is now a buyer’s market for carbon offsets.

As detailed in its study, the NGO Forest Trends found voluntary offsets to be highly affordable, with an average cost of $3 to offset the equivalent of a metric ton of carbon dioxide (MtCO₂e). But those prices also had a wide variance, from wind power projects costing as low 70 cents per MtCO₂e, to forestation projects in Africa costing 10 times that amount. And it was forestry management projects that generally garnered the highest prices, costing on average $8 to $9 per MtCO₂e depending on the type of project. Grassland management also came at a high price of almost a $7 per MtCO₂e on average. Clean cookstove distribution projects also trended higher than average, netting just over $5 per MtCO₂e.

But those aforementioned projects had a far lower purchased volume combined than offsets that were designed for REDD+ (reduced emissions from deforestation and forest degradation), wind power or landfill methane projects. REDD+ projects could score competitive prices, topping off at over $4 per MtCO₂e. But wind power and landfill methane programs, which during 2016 earned $1.50 and $2.1 per MtCO₂e, respectively.

REDD+, wind and landfill methane carbon offsets prevented the emissions of about 23 million MtCO₂e. Contrast that with reforestation, improved forest management, grassland projects and the distribution of clean cookstoves, which accounted for approximately 5 million MtCO₂e – hence the low overall price.

Overall, $191.3 million in offsets was spent to offset 63.4 million MtCO₂e last year, a 24 percent drop from 2015. And there is a huge glut of carbon offsets on the market, with 56.2 MtCO₂e unsold as of the beginning of 2017.

Part of the challenge surrounding carbon offsets is the discussion of whether they are really effective or not. Some NGOs, including the Nature Conservancy, insist that their offset programs are verified by third parties to ensure those offsets actually prevent carbon emissions. One huge problem is “leakage,” as in an agriculture firm buying land for development next to a plot purchased or protected through an offset program.

The future of these markets shows both promise and concern, in the view of Forest Trends’ analysts.

The political situation in the U.S. could push carbon offsets in either direction; the U.S. could simply abandon its climate change goals, or the private sector could ramp up investment in low-carbon technologies even if the federal government completely backs away from such efforts.

The International Civil Aviation Organization (ICAO) says it will accelerate its own carbon offset program, as renewable jet fuel technologies are not ready to scale any time soon while air travel continues to increase worldwide. And countries that signed onto the global climate agreement in Paris will have to disclose how exactly they will accomplish those goals, which could also give the carbon offsets market a lift.

But despite ongoing criticism, Forest Trends is still bullish on carbon offsets. “As countries shift from debating climate change to implementing their proposed solutions,” its CEO wrote in the report, “voluntary offsetting can help tackle climate change now and explore new avenues of emissions reductions that may be included in compliance programs in the future.”

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