Carbon Credit Market Industry Outlook, Size & Forecast 2028
Carbon Credit: An Overview
Carbon credits are certificates that represent a reduction of one metric tonne of carbon dioxide or its equivalent in other greenhouse gases. The idea behind carbon credits is to put a price on carbon emissions and provide incentives for businesses, organizations, and individuals to reduce their carbon footprint and invest in cleaner, more sustainable energy alternatives.
Carbon Credit Market Executive Summary
The Global Carbon Credit market was valued at USD 760.28 Billion in 2021 and is expected to grow at a CAGR of 21.14% during the forecast period of 2023-2028. Demand for carbon credits is expected to increase drastically in the near future due to the growing number of corporate net-zero commitments. Purchasing carbon credits allows corporations to become carbon-neutral today while they continue to work to reduce their emissions
History of Carbon Credits
The concept of carbon credits was first introduced by the United Nations Framework Convention on Climate Change (UNFCCC) in 1997. The UNFCCC established the Clean Development Mechanism (CDM), which allows developed countries to earn carbon credits by investing in emissions-reducing projects in developing countries. These credits can then be used to offset emissions in their home countries.
Carbon Credit Programs and Exchanges
One of the most popular carbon credit programs is the European Union Emissions Trading System (EU ETS). Launched in 2005, the EU ETS is the largest carbon market in the world and covers more than 11,000 power plants and industrial facilities in 31 countries. In addition to the EU ETS, there are other carbon credit programs and exchanges that operate on a regional or national level. These programs allow businesses, organizations, and individuals to offset their carbon emissions by purchasing carbon credits from emissions-reducing projects.
Benefits of Carbon Credits
One of the benefits of carbon credits is that they provide a flexible and cost-effective way for businesses and organizations to reduce their carbon footprint. Instead of investing in expensive emissions-reducing technologies, companies can purchase carbon credits from existing emissions-reducing projects. This allows them to meet their emissions reduction targets at a lower cost and supports the growth of the emissions-reducing industry. Carbon credits also provide a way for individuals to reduce their carbon footprint.
Criticisms of Carbon Credits
While carbon credits are popular and effective, there are also criticisms of the system. Some argue that they can be used as a way for companies to avoid making necessary investments in emissions-reducing technologies. Others argue that carbon credits can be subject to fraud and abuse, with companies claiming to have reduced emissions when they have not.
As more private companies seek to engage in the offset market, recent advances have been fuelled by a rise in voluntary demand for these credits. Since projects with societal benefits coupled with emissions reductions are perceived as more attractive to voluntary buyers, these corporations have been under pressure from shareholders and the general public to drive this in recent years.
The demand increase in the offsetting market is caused by a rising awareness of environmental challenges on a global level, catalyzed by COP26. More and more companies are recognizing the environmental and social value of offsetting projects and taking climate action by compensating for their carbon footprint.
The voluntary market segment is expected to grow tremendously in the upcoming years. Voluntary carbon credits, whilst historically transacted through bespoke bilateral agreements between buyer and seller, can increasingly be bought through specialized carbon credit exchanges and trading platforms. Given the growth of the voluntary carbon credit market, more established exchanges are looking to launch their own offerings.
In conclusion, carbon credits are a powerful tool for reducing carbon emissions and promoting sustainability. Despite criticisms, they provide businesses, organizations, and individuals with a flexible and cost-effective way to offset their carbon emissions and support the growth of the emissions-reducing industry. As the impacts of climate change become increasingly apparent, the use of carbon credits is likely to become even more important in the years to come.