Overview: Often confused with carbon credits, offsets are a similar environmental accounting mechanism & another rapidly growing industry. In late 2021, the market surpassed $1 billion, leading many people unfamiliar with the topic to wonder why carbon offsets are so valuable.
Recently, the carbon offset market has exploded.
Many big-name institutions, from Google to Microsoft to the British government, have been purchasing mass amounts of offsets to counteract the effect of the emissions they produce. Companies around the globe are beginning to impose sustainability goals; popular among corporate sustainability goals is the commitment to becoming net-zero by 2030 or by 2050.
The reality of these goals is that carbon offsets are a necessary part of them. It takes time for sustainable technology to develop and scale. Even if a company can implement technology, it would be almost impossible to account for all of its emissions, especially Scope 3, most indirect emissions. Due to this, carbon offsets are a necessary part of the path to sustainability.
With carbon offsets being integral to the future of many corporations, there is an anticipation of a sharp rise in their future price. Bank of America estimates that achieving net-zero would require a fiftyfold increase in demand for carbon offsets. Predictions such as those may be conservative estimates since the demand for carbon offsets is also related to the success in the fight against climate change.
If you haven’t heard, it isn’t going well.
With current ways of fighting climate change proving ineffective, carbon offset markets will become more and more essential to the fight for our planet. Many analysts expect the offset market to grow to at least $25 billion by 2030 and around $100 billion by 2050, making the offset market one of the world's most widely predicted growth markets.
So, the market is primed for a boom in price, but what creates that demand? Why do so many companies seem likely to pour money into carbon offsets? What makes them valuable?
The simple answer is the same reason anyone buys anything: self-interest.
Carbon offsets are marketed as a noble deed you can do to help the environment. That is not even close to the whole story. While it’s true that offsets do help the environment, the reality is that self-interest is the real driver of demand for carbon offsets.
Generally, companies only care about the bottom line. That incentive now aligns with the fight against the climate crisis.
Our changing climate will affect everyone in the world, including corporations and their necessary operations. Companies don’t want to spend money on something they will not get an immediate, direct return. They also don’t want their operations to be disturbed by the effects of climate change.
With carbon offsets being the best tool to combat the climate crisis, they are the natural and widely expected option for corporations. Essentially, corporate demand for carbon offsets is about to increase rapidly, and the value of carbon offsets is directly related to corporate demand.
Historically, corporate demand is a pretty good thing to have in your corner. Nobody should be shocked if carbon offsets become the highest rising asset class of the next decade.
If you’re interested in joining them in that endeavor, feel free to check out our website.