Where the Carbon Offset Market Is Poised to Surge
- Media Manager
- Apr 10, 2023
- 2 min read
Morgan Stanley
Published: April 11th, 2023
Decarbonization strategies are driving a rapidly evolving market for offsets. Where are the opportunities?
Voluntary carbon offsets are helping companies and countries meet ambitious climate targets. By purchasing “credits” from projects that remove or reduce carbon output, the private and public sectors hope to mitigate the impact of their emissions in the short term as they work toward eliminating their carbon emissions.
To reach the sustainability goals in the 2015 Paris Climate Accords and various national and company-level targets, Morgan Stanley Research estimates that the world must remove at least 1 gigaton of carbon dioxide per year by 2030, based on analysis of data from Network for Greening the Financial System, though the opportunity for avoidance or reduction credits could be up to 10 gigatons per year. Each carbon offset represents one metric ton of carbon dioxide removed, reduced or avoided in the atmosphere.
"The carbon-offsets market has evolved rapidly, prompting increasing interest from investors and corporates," says head of ESG fixed income research Carolyn L. Campbell. While offsets should be used only against unavoidable emissions for which there are no other viable alternatives, they represent an important runway while other methods to decarbonize develop, she says. Campbell and her team estimate that about 4,000 carbon-offsets projects have issued credits for roughly 1.7 billion offsets (or 1.7 gigatons of carbon). With 3,800 more projects listed, pre-registered or registered and awaiting credit issuance, the voluntary carbon-offsets market is expected to grow from around $2 billion in 2022 to about $100 billion in 2030 and around $250 billion by 2050.
Just where that growth occurs, however, is largely dependent on three key shifts in the carbon offset market, centered around which credits to buy and whether to buy any at all. Here Morgan Stanley Research outlines the risks, opportunities and emerging trends.
