Carbon markets incentivize renewable energy, CCS, DAC, nature-based solutions and other CO2 offsets. In the past, we naïvely assumed these would grow as much as needed to reach Net Zero by 2050. This 14-page note revises our forecasts, by analogy to other forms of charitable giving. We see voluntary carbon markets reaching $400bn pa by 2050, while the EU ETS could be scaled back?
The size of carbon markets is quantified on pages 2-4, across different categories and over time. Some sources say carbon markets are worth $1trn per year, but this mainly reflects the “trading churn” of futures in compliance markets. True carbon markets are somewhat smaller.
The most achievable route to net zero by 2050 would have had an aggregate cost of $40/ton, in order to abate 80GTpa of potential CO2 emissions, creating multi-trillion dollar upside for CO2 abatement. But we fear the world is not on track for net zero, as re-capped on pages 5-6.
Where does this leave carbon offsets? One argument is that CO2-focused initiatives, especially schemes like the EU ETS, will entirely peter out. Arguments for this position are highlighted on pages 7-8.
People can still be charitable, even without thinking that their charitable contributions will solve all global ills. Ultimately, we think this may be a better analogy for modeling the size of future carbon markets. Examples are on page 9.
Charitable giving is quantified by country, by cause, by income demographic, on pages 10-11.
Companies in the technology, finance, high-end consumer, consulting and other high-margin, non-energy intensive professional services sectors, might be particularly willing to support CO2-reducing initiatives, in order to follow their own moral compasses and claim to be net zero, which may help drive revenues, attract employees and secure financing, as discussed on page 12.
Our revised forecasts for future voluntary carbon markets — Renewable Energy Certificates, Reforestation projects, CCS, DAC and blue hydrogen are presented and justified on pages 13-14.