World Future Energy Summit
14–16 January 2025
ADNEC Centre Abu Dhabi
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What’s next for Carbon offsetting in 2024?

There’s no way around it, 2023 was a rough year for the voluntary carbon offsetting market. While compliance markets, such as the EU’s emissions-trading scheme, continue to generate interest and investment, the overall market value of voluntary offsets ended 2023 at roughly $2 billion. – which is roughly where they were in 2021. However, hope is in the air that carbon offsetting could enjoy a turnaround in 2024.

If investors can be won back to the idea that carbon markets are poised for rapid growth – and equally rapid reform – then it could inject some dynamism back into a concept that has suffered recently.

But what will that take? 

Clean up

The whole carbon offsetting concept relies on the environmental integrity of the credits being issued, purchased and traded. This question of integrity, of the efficacy of the very offsetting activities in the first place, must be addressed if the practice is to recover its standing and forward momentum in terms of attracting investment.

Without the kind of clear guidance on standards and transparency delivered from an authoritative source like the UN, the voluntary market will remain something of a “Wild West” scenario where trading will be based on the hope of future market formalisation, rather than a genuine desire to decarbonise.

Progress is happening, however. Bloomberg reports that several long-awaited reforms in key carbon markets are likely to be delivered in 2024. In California, rising ambitions to lower emissions by 48% by 2030 versus 1990 levels, and by 85% by 2045, have put the question of carbon offsets front and centre. The need to move faster on decarbonisation is pushing lawmakers to tighten up market rules so that firms will have a clear path to participate in voluntary carbon offsets in good faith. Bloomberg expects concrete plans to emerge before the end of this year.

Lawmakers in California are looking at the problem through the other end of the telescope as well; with State Senator Monique Límon reintroducing legislation that would make it: “unlawful for a person to sell carbon offsets if they know or should know the claims made about those offsets are unlikely to be quantifiable or real.”

Both approaches – clarifying the rules for meaningful offset products as well as the penalties for trading disingenuous ones – are necessary for cleaning up the market and reintroducing stability. 

Catch up

Supply of high-quality, reliably transparent carbon credits needs to catch up with current demand. Voluntary carbon markets (VCMs) were booming just a few years ago, with the global market expanding by 48% in 2021 alone. This underlined the surging demand expressed by firms of every stripe and sector, as they rushed to outline their pathways to achieve net zero.

Demand for this outcome hasn’t gone away. Private firms, even the governments of whole countries, still want to demonstrate faster progression towards their net zero milestones, and view carbon offsetting as a potentially viable part of their decarbonisation mix. It is only the looming question mark of VCMs’ ability to deliver tangible emissions reductions that has stalled the market’s growth so spectacularly.

What will be crucial in 2024 is the question of current carbon credit supplies. 2023 saw an oversupply of perhaps as much as 50% as prices collapsed and investors quit the market in droves. There are calls to remove masses of ‘junk’ credits that cannot be easily or accurately verified. Regardless of whether this happens or not, 2024 will inevitably see a “flight to quality”, whereby investors will only commit to credits issued from high-quality climate projects, ones without a whiff of malpractice, to avoid any question of greenwashing.

This is where the market must focus its attention; by servicing demand for quality credits, this will galvanise both investment and further efforts from regulators and lawmakers to improve transparency and overall standards across all markets.

Scale up

Once trust is restored, transparent standards in place and high-quality credits outweigh those of dubious worth, carbon offsetting has the chance to take off in a way that will make 2021 seem like a trickle before the flood.

McKinsey has estimated that the market value of voluntary offsets could reach $50bn by 2030 –an expansion of 25 times its current size, in just seven years. In its most optimistic prediction model, Bloomberg sees prices exceeding $200 per tonne and a market value of over $1.1 trillion annually by 2050. This assumes that the right steps are taken now, and both outlets agree that 2024 will be a defining year for the future of the market.

Scaling up the market begins with the efforts to normalise, formalise and clarify standards across the board. But from there it will be a case of ensuring that there are sufficient credits to adequately satisfy demand from an ever-widening range of   sources. The right products will need to be available for everyone from the most ardent eco-friendly consumer brand to traders who are less interested in saving the world and motivated more by monetary gain.

Through the stirrings are small, we can already see mainstream financial institutions gearing up for this scenario. Banks are building up trading desks to buy and sell offsets. In early February, nine global banks plugged $45 million into a new platform designed to scale up voluntary carbon credit transactions, facilitating easier market entry and access.

It’s clear that the prevailing market sentiment is that one way or another, it will become a major part of how we decarbonise our collective future. As 2024 gets underway, what’s needed is a stronger foundation of trust that investors can bank on, and better offset programmes can be built upon.

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