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According to a new report published by Allied Market Research, titled, "Carbon Credits Market," The carbon credits market was valued at $2 billion in 2022, and is estimated to reach $143.5 billion by 2032, growing at a CAGR of 55.5% from 2023 to 2032. Carbon credits can be bought and sold in carbon markets. Buyers, such as companies, governments, or individuals, purchase carbon credits to offset their own emissions and meet their sustainability goals. The carbon credits are transferred from the seller to the buyer, often facilitated through specialized platforms or exchanges. Carbon credits help the companies to minimize their greenhouse gas emissions.
Several initiatives taken by various countries to lower the emission of greenhouse gases and to achieve net zero carbon neutrality is driving the demand for the carbon credits market. In this market, each carbon credit is assigned a unique identification number to track ownership and prevent double-counting. The emission of greenhouse gases need to be reduced to address the rising environmental issues such as floods, droughts, melting glaciers, earthquakes, and others. Carbon credits help to slow down carbon emissions, however some emissions are unavoidable. In such cases, the carbon credits are utilized to compensate or neutralize the carbon emissions to balance the amount of carbon dioxide emitted into the environment. Also, carbon credits give businesses the chance to reduce their future emissions through asset turnover and the development of their business models, as well as the option to offset their current emissions. Many private businesses voluntarily participate in the carbon credits market as a part of their corporate social responsibility (CSR) activities. Carbon credits are usually generated via forestry or agricultural practices.
However, the cost of carbon credits vary based on regions and countries. For instance, in Brazil, the cost of 1 carbon credit is around $411.36 (R$2000). Thus, the market may face challenges due to the rising cost of carbon credits. Also, carbon credits do not represent actual carbon emission reductions by the company or an individual. This is because maintaining the credibility and integrity of carbon credits needs proper reporting, monitoring which is not present at the moment. These factors are projected to hamper the market revenue growth in the upcoming years.
The collective actions and co-operation across several countries to combat the climate change is anticipated to boost the carbon credits market growth in the upcoming years. For instance, in February 2023, India announced investments and list of activities that can help in achieving environmental sustainability. For instance, under these activities, the Indian government has considered the trading of carbon credits under Article 6 of the Paris Agreement in the international market. The wish list of areas from where India would attract investments in carbon credits include renewable energy generation such as green hydrogen, thermal power, off-shore wind, compressed biogas, carbon capture and storage, and other carbon removal & mitigation activities. Also, on June 8, 2023, the World Bank's insurance arm named the Multilateral Investment Guarantee Agency (MIGA) has planned to provide insurance cover for carbon credits projects that will attract large-scale investments across the countries that are major carbon-emitters. This will also help in regulating the trade of carbon credits. These aspects are anticipated to boost the carbon credits market size during the forecast period.
The COVID-19 pandemic has had significant impact on the market for carbon credits. Numerous projects that help in reducing the carbon emissions were halted as a result of the pandemic. Projects were delayed or cancelled due to travel restrictions, supply chain disruptions, and financial limitations. This consequently had an impact on the creation of new carbon credits and decreased their marketability. The demand for carbon credits was impacted by the economic downturn brought on by the pandemic. Businesses that are experiencing financial difficulties and declining revenues may have reduced their voluntary carbon offsetting efforts. In addition, some businesses put short-term financial viability ahead of long-term sustainability objectives, which led to a decline in the demand for carbon credits in some industries.
The key players profiled in this report include: South Pole, 3Degrees, EKI Energy Services Ltd, TerraPass, NATUREOFFICE, Moss.Earth, Climate Impact Partners, Carbon Credit Capital, LLC, CarbonBetter, and NativeEnergy. The market players are continuously endeavoring to have a dominant position in this competitive market by using strategies such as collaborations and acquisitions.