Rising Demand for Carbon Offsets Squeezes Supply and Drives Up Prices
The surging demand for carbon offsets is causing a strain on supply and leading to price increases. Offset retailers like Tribeca Investment Partners Asia and non-profit organizations like MyClimate have reported that buyers are facing challenges in acquiring desired volumes of offsets, with recent vintages mostly sold out.
The growing interest in the voluntary carbon market aligns with the increasing number of corporate commitments to achieve net-zero emissions, following the COP26 summit held last year. Furthermore, the expectation of the voluntary carbon market evolving into a multi-billion dollar industry has also attracted attention. From June 2021 to January 2022, the prices of "nature-based" offsets, such as those from tree-planting initiatives, have more than tripled, rising from around US$4.65 per ton of carbon to approximately US$14.40 per ton (as reported by S&P Global Platts).
London-based Natural Capital Partners has noted a shift in behavior, with polluting companies that previously purchased offsets on the instant spot market now seeking long-term contracts. Additionally, institutional investors view these offsets as a new avenue for generating profits. The International Organization of Securities Commissions (Iosco), which convenes securities regulators worldwide, believes that the growing investor interest reinforces the need for global standards. Iosco suggests that if complex secondary markets and other investment structures emerge, globally consistent good practices or standards will be crucial for maintaining investor confidence.
The current dynamics in the carbon offset market reflect the growing urgency to address climate change, as more entities and investors actively seek ways to reduce their carbon footprints and support sustainable initiatives. However, the increased demand for offsets underscores the importance of robust supply chains and the need for global standards to ensure transparency and credibility in the market.
