Carbon Debate Threatens to Leave Prices Sky High, or ‘Worthless’

The debate over what standards should be applied to carbon offsets could end with requirements so stringent they send prices soaring to punishingly high levels, or by leaving rules so loose they make offsets cheap enough to be “largely worthless,” according to a forecast from BloombergNEF.

The buying and selling of credits that purport to offset a company’s pollution has become part of the global effort to limit global warming, but regulations over those markets are still in infancy and the standards set now will have major implications for whether companies and countries are able to reach emissions goals.

Offsets are financial instruments that represent the reduction of one ton of greenhouse gases. That reduction can come from avoiding carbon emissions — say, by using a wind turbine or solar array to generate electricity, rather than fossil fuel — or by removing carbon from the atmosphere and storing it.

If both standards are used for offsets, the market will be oversupplied, BNEF says. Prices, which averaged $2.50 per ton in 2020, will stay as low as $11 per ton in 2030 and $47 in 2050, according to BNEF’s Long-Term Carbon Offset Outlook 2022. At that level, developers and traders will have little incentive to participate in the market.

Some organizations are pushing to use only offsets tied to removing carbon from the atmosphere and storing it. But many of those technologies are still so new that adopting such a standard would send offset prices skyrocketing to $224 by 2029, before retreating to $120 in 2050, BNEF predicts. High prices would also hinder the development of the market, although they could encourage companies to focus more on reducing their emissions, rather than offsetting them.

“Suppliers, buyers of offsets, traders and investors will need to balance what is idealistic and what is realistic,” said Kyle Harrison, head of sustainability research at BNEF. “Otherwise, they risk the offset market burning out just as it’s getting started.”

David R. Baker reports for Bloomberg News.

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