Projects that successfully contracted voluntary offsets in 2012 could potentially reduce 54-233 MtCO2e/year, or 430- 1,860 MtCO2e cumulatively over the next eight years, based on their estimated annual reductions, according to this year’s State of the Voluntary Carbon Markets report, released by Forest Trends’ Ecosystem Marketplace.
This does not account for projects that might exit the market, as discussions with offset suppliers indicate that project developers will indeed abandon carbon project activities and revert back to a business- as-usual scenario if/when carbon revenues prove insufficient. Nor does it account for the even larger volumes of emissions reductions from large-scale projects that are not yet online, but are in the pipeline. Project developers reported that they anticipate bringing an additional 1,440 MtCO2e online over the next five years – more than has been contracted cumulatively to date.
To absorb these volumes, and according to survey respondents’ back-of-the-envelope predictions, the market expects an average market growth rate of 17% in 2012-2020. Based on the voluntary carbon market’s historical average price of $5.9/tCO2e, suppliers’ predictions place market value at $2.3 billion in 2020.
Another predictive measure – that of recent years’ average growth rate for voluntary offset demand (13% from years 2008-2012) – estimates 2020 market value at $1.6 billion.
In order to incentivize voluntary offsetting activities of this magnitude, suppliers say the market must more effectively communicate the value of its underlying infrastructure and pilot project activities to private sector actors, the international donor community, and governments seeking tools to incentivize, verify, and finance emissions reductions. They also anticipate that in coming years, the private sector may increasingly leverage offset payments to incentivize sustainable resource management in their supply chains and spheres of influence.
Despite the continued predominance of renewable energy offsets flowing from major supplier countries China and India, Asia saw forestry, energy efficiency, and fuel switching offsets grow significantly in market share. Overall, the region saw a 4% increase in the volume of offsets supplied, while their average price fell by 9% to $3.5/tCO2e.
While the bulk of the region’s offsets flowed to overseas buyers in keeping with previous years, 2012 saw a significant increase in the purchase of Asian offsets by Asian buyers – a growing trend as emissions trading schemes and domestic offset initiatives are set to develop over the next several years in China, South Korea, Thailand, and Vietnam.
On the demand side, buyers in the United Kingdom and other major European countries continued to show a strong appetite offsets from abroad, securing a total of 43.4 MtCO2e offsets in 2012, with over half of those offsets sourced from projects in Asia.
Offset suppliers remain concerned that the collapse of an EU carbon price and exclusion of a host of CDM projects post-2012 will channel an oversupply of compliance instruments into the voluntary markets. In 2012, Ecosystem Marketplace tracked less than 1 MtCO2e of CDM offsets (“CERs”) sold to voluntary buyers – typically from unique projects and locations and at prices similar to those paid to traditional voluntary projects. We will continue to closely track these developments throughout the year.
While concerns about the fate of millions of CERs drive some suppliers to distance themselves and their products from the Kyoto offset market, others are focusing on connecting with emerging compliance programs – in California, Australia, South Africa, China, and various jurisdictions in Latin America. Here, offset infra structure providers and market participants are working to bridge the gap between voluntary and compliance programs.
In the midst of this dynamic marketplace, voluntary offset market players are also changing their pitch – from simply offsetting carbon emissions to relating their on-the-ground experience to broader policy and corporate sustainability objectives. This involves highlighting the offset project market’s potential for rapid response to mitigation opportunities that can supplement slower-moving fund-based actions. Some market players are focused on communicating lessons learned about verification and results-based finance models. Still others are developing a new lexicon around the delivery of vulnerability reduction, health, and other public benefits associated with private sector interventions. Through a combination of these and other efforts to raise the offset product market profile, suppliers strive to remain relevant as climate policy makers target ever-more scalable solutions.