The Carbon Credit Marketplace

GTVC Insider: 1st Edition — Authored by Nils Bognar

You might have seen the buzzwords “carbon neutral” or “net-zero” advertised by your favorite manufacturer or restaurant group. But what does this really mean?

Welcome to the Carbon Credit Marketplace.

The Backstory

In 1989, in the midst of one of the worst droughts in US history that brought global warming to the front pages, an energy company called Applied Energy Services (AES) took note. AES was in the midst of building a coal plant and conscientiously sought to find a way to undo the environmental damage caused by the plant.

A woman by the name of Sherly Sturges proposed planting trees to drink up all of the CO2 emissions, as a carbon offset. Her initial idea was to build a small park around the plant and she went to climate scientists to figure out how many trees it would take. The number was 52 million – an impossible number of trees to put in any area around AES. However, the location didn’t matter. Sturges found an organization working with farmers in Guatemala and AES paid the farmers to grow the trees as crops.

The farmers got money. AES got their carbon offsets and received a bunch of citizenship awards. The total cost was $2 million. Countries as well as huge corporations like General Motors and Microsoft dove in, and the $2 million experiment in Guatemala slowly evolved into a global marketplace worth $479.41 billion.

A $479 Billion Industry

The market-based approach to solving environmental concerns has always been the most viable path of action. Government policy and technology have long sought to lower the cost of sustainable practices and raise the cost of unsustainable ones. The issue, however, is that sustainability is much, much less profitable. Hence, the slow and often forced adoption of environmental initiatives.

The middle ground is found in carbon credits. In conjunction with government policy, the carbon credit marketplace fit right into the capitalist world economy and began to thrive. The Kyoto Protocol and the Paris Accord set the ground rules and gave policy to countries. This policy prodded countries and corporations to cut emissions or buy credits --> which they did by the billion.

There was an explosion in the number of projects aimed at reducing or sequestering greenhouse gases, from reforestation efforts in the Amazon to renewable energy projects in India. Exchanges were formed for these credits to trade on, similar to commodities like oil or gold, turning carbon into a highly liquid asset class. Institutional investors and hedge funds recognized this as a lucrative investment opportunity, and the money flew in, accelerating into the industry we know today. Now, the global marketplace was estimated $479.41 billion in 2023 and is expected to grow at a CAGR of 39.4% from 2024 to 2030 (GVR).

By the Numbers

The global marketplace was estimated $479.41 billion in 2023 and is expected to grow at a CAGR of 39.4% from 2024 to 2030 (GVR). This market is primarily driven by various government-led policies and voluntary markets (Grand View Research).

While projections are set high, 2023 demand figures were only up 2% from the previous year with all eyes looking to 2024 for the market to reestablish itself. Climate commitments by Fortune 500 companies seem to be leveling off around 66% as well with growth slowing significantly.

Shortcomings of Carbon Credits: Taylor Swift

In 2022 schoolboy Jack Sweeney exposed numerous celebrities such as Elon musk and Taylor Swift's private jet usage and emissions. One of the most controversial was Taylor Swift's usage. At its peak, she used around 8,300 tonnes of emissions, equating to roughly 1800 times more than the average human.

She quickly excused herself by claiming to have bought enough carbon credits to offset her travels twice-fold. An appreciated gesture but one that fully highlights the failures of carbon credits and the ability of rich polluters to pay their way out of environmental crimes* – celebrities, enterprises, and countries included.

The allure of carbon credits lies in their simplicity: buyers can continue their operations, regardless of emissions, as long as they purchase enough credits to offset their carbon footprint. It is a double-edged sword, allowing billions to pour into environmental projects but also for billions of tons of CO2 to continue to be released unchecked.

Looking to the Future

Rising demand for carbon credits has been an increase in government environmental regulation and corporate commitments. More focus on economic concerns and heavy lobbying has limited environmental policy -- key in driving demand throughout the carbon credit marketplace. Corporate commitments are leveling off from 2019-2022 rates, displaying a large slowdown in another key factor for the market. 2024 and 2025 will be key years to see if this slowdown will continue or if carbon credits will be able to get back on track to reach 2030 projections.

Thanks for reading this far. If you’re interested in joining GTVC or being part of one of our events, please reach out to Xander Coles at [email protected]

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