Carbon Offset/Carbon Credit Market

[191 Pages Report] The global carbon offset/carbon credit market in terms of revenue was estimated to be worth $414.8 billion in 2023 and is poised to reach $1,602.7 billion by 2028, growing at a CAGR of 31.0% from 2023 to 2028. The voluntary carbon market continues to play a critical role in that transition by helping to channel funding into projects that reduce carbon emissions or remove carbon from the atmosphere. Since, the need to curb global warming has significantly increased, the carbon offsetting have become fundamental to achieving net-zero greenhouse-gas emissions.

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Carbon Offset/Carbon Credit Market Dynamics

Driver: Rise in partial use of carbon credits by companies

As the world moves toward net zero targets,  companies are putting considerable effort and capital into decarbonization. Climate change usually requires a complete economic shift. The demand for carbon credits will significantly grow in the coming decades as the companies are focused on net zero targets and are working toward reducing carbon emissions. A carbon credit represents the right to emit greenhouse gases equivalent to one ton of carbon dioxide. Several businesses are now adopting this technique of partially using carbon credits, which is benefitting them significantly. They are getting involved in projects and activities that are helping them generate offsets. They use as many credits as they want according to the limit set for a project and if they have a few left, they are used later for another project. This not only helps them save a significant amount of money, which can aid them in investing in more such credits in the future when required. Hence, these factors help in driving the market for carbon offset/credits.

Restraint: Restoration of carbon emissions from one location to another

Forestry projects are particularly prone to leakage of offsets, which is difficult to quantify for forestry (and other offsets) projects. Different protocols indicate various approaches to quantify leakage so there is less consensus on the validity of any approach. For instance, there is a reduction in the harvest in North Carolina due to an improved forest management project. The project intensifies forest harvest in the Pacific Northwest or Indonesia. In this case, the project has only shifted the location of emissions, not leading to a net reduction. Hence, the location of emissions has changed and has caused emissions at another place, leading to the non-removal of carbon from the atmosphere.

Opportunities: Rising financial support to local communities

The demand for carbon credits will grow significantly in the coming decades. The voluntary offset market offers an opportunity to achieve global greenhouse emission reductions while addressing the development needs of developing countries. Involving developing nations in climate protection allows them to achieve carbon emission reduction and avoidance while earning revenues from selling their offsets. They can then use the revenues to finance development projects for the poor communities in their countries. Carbon projects are designed to maximize nature’s contribution to the fight against climate change. By protecting and restoring forests, grasslands, and other ecosystems, the increased carbon storage can be measured and turned into carbon credits, which leading companies and individuals can buy to help them meet their climate goals. The goal is to develop bankable carbon initiatives to show they can deliver conservation, community, and financial returns, to encourage others to replicate the model, and together achieve large-scale wins for climate, biodiversity, and livelihood across Africa.

Challenges: Fluctuating prices of carbon credits

The increasing price of carbon credits may act as a market challenge during the forecast period. For humankind to sustain a livable atmosphere on the planet, several countries have committed to achieving carbon neutralization. Countries mainly reduce carbon emissions by regulations through a carbon tax or by establishing a carbon market using economic stimuli. Energy factors had a long-term impact on the carbon market, and economic factors had a short-term shock on the carbon market, whereas the economic recession has led to fluctuations in the carbon market. According to the World Bank, carbon prices have risen sharply in the past year, and this is mostly due to the increased demand as decarbonization efforts accelerate. The rapid increase in the value of offsets reflects both the rising prices and the rising demand from corporate buyers leading to higher transacted offset volumes.

Carbon Offset Market Ecosystem

Prominent companies in this market include well-established, project developers and exchange partners. These companies have been operating in the market for several years and possess a diversified product portfolio, state-of-the-art technologies, and strong global sales and marketing networks. Prominent companies in this market include South Pole Group (Switzerland), 3Degrees (US), Finite Carbon (US), EKI Energy Services Ltd. (India), and NativeEnergy (US).

The voluntary segment, by type, is expected to be the fastest market during the forecast period.

This report segments the carbon offset/carbon credits market based on type into voluntary and compliance. Voluntary market is free from regulations compelled by authorities in the compliance market. With the improvement in the transparency and clarity surrounding the quality of credits, the participants can actively participate in the voluntary market with reliability.

By End-User, the power segment is expected to be the largest during the forecast period

This report segments the carbon offset/carbon credits market based on end-user into industrial, power, energy, transportation, buildings, aviation, and others. Other end-users include forestry, agriculture, and waste. The power segment is expected to be the largest segment during the forecast period. The power sector is a large emitting sector and uses low-GHG technologies that are commercially available and hence they are the largest segment adopting carbon offsetting projects and schemes.

“Asia Pacific”: The fastest in the carbon offset/carbon credit market”

Asia Pacific is expected to fastest growing region in the carbon offset/carbon credit market between 2023–2028, followed by the Europe. ETS could become a major climate policy tool to help China realize its Nationally Determined Contribution (NDC) to the Paris Agreement on climate change and its long-term low-carbon strategy. Hence, these factors are expected to fuel the growth of the market in the Asia Pacific region.

Key Market Players

The carbon offset/carbon credit market is dominated by a few major players that have a wide regional presence. The major players in the carbon offset market are South Pole Group (Switzerland), 3Degrees (US), Finite Carbon (US), EKI Energy Services Ltd. (India), and NativeEnergy (US). Strategies such as partnerships, collaborations, and mergers are followed by these companies to capture a larger share of the market.

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Scope of the Report

This research report categorizes the market by type, project type, end-user, and region.

On the basis of by type, the carbon offset/carbon credit market has been segmented as follows:

• Compliance Market
• Voluntary Market

On the basis of project type, the market has been segmented as follows:

• Avoidance/Reduction projects
• Removal/Sequestration projects
  • Nature-based
  • Technology-based

On the basis of end-user, the carbon offset/carbon credit market has been segmented as follows:

• Power
• Energy
• Aviation
• Transportation
• Industrial
• Buildings
• Others

On the basis of region, the market has been segmented as follows:

• Asia Pacific
• Europe
• North America
• RoW

Recent Developments

• In November 2022, 3Degrees partnered with Merge Electric Fleet Solutions to provide actionable analysis and decades of expertise to existing and new fleet customers. 3Degrees will monetize Merge’s charging in the clean fuels states (CA, OR, WA) and offset all EV charging with RECs.
• In August 2022, Johnson Controls collaborated with 3Degrees to accelerate the race to net zero. The collaboration fast-tracks net zero goals through carbon reduction services.
• In August 2022, Siemens Smart Infrastructure and South Pole partnered to offer a full range of solutions and financing models for companies to reduce energy-related emissions.
• In August 2021, South Pole partnered with Landcare NSW, to develop climate action projects across New South Wales, Australia. The partnership brings together South Pole’s global and local expertise as a project developer with Landcare NSW’s strong community network, creating opportunities for Landcare members across the whole state via the range of carbon and biodiversity project options available.

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