The demand for carbon credits has seen a significant rise in recent years, largely driven by government policies and regulations aimed at reducing greenhouse gas (GHG) emissions. Companies impacted by these regulations often need to purchase carbon credits to offset their emissions and comply with the established rules. For instance, India’s recent passage of the Energy Conservation Bill, 2022, paves the way for the creation of carbon credit markets. On a global scale, market growth is mainly fueled by state-level programs and voluntary markets.
In the U.S., voluntary markets also allow companies to buy carbon credits to offset their emissions. These markets are particularly popular among companies aiming to lower their carbon footprint, even when not required by law. While the U.S. carbon credit market is relatively small compared to regions like Europe, it is expanding and may play an increasingly significant role in mitigating GHG emissions in the future. As sustainability becomes a priority in corporate social responsibility efforts, companies are turning to carbon credits to meet their environmental goals.
As per Cervicorn Consulting, the global carbon credit market size is expected to reach around USD 13,321.67 billion by 2033 and is growing at a compound annual growth rate (CAGR) of 39.71% from 2024 to 2033.
This heightened awareness of climate change and its potential consequences has further spurred the demand for carbon credits. However, one of the challenges facing the market is the price volatility of carbon credits, which fluctuates based on supply and demand. This volatility makes long-term planning difficult for companies and raises concerns about whether carbon credit prices offer enough financial incentive for emissions reductions.
Emerging economies and businesses are increasingly entering the carbon credit trading space. A notable example is Saudi Arabia’s Olayan Financing Company (OFC), a subsidiary of The Olayan Group, which participated in the largest carbon credit auction held in Nairobi, Kenya, in June 2023. Over 2 million tons of high-quality carbon credits were sold to more than 16 companies in Saudi Arabia during the auction.
Emission Trading Schemes (ETSs) have proven to be effective tools for economic growth and carbon mitigation, particularly for emerging economies like China and India. These schemes can enhance cash flow, production, and investment decisions for regulated businesses. In 2022, the government of China reported that the daily weighted average price of China Emission Allowances (CEAs) in its national compliance market was USD 8.34/mtCO2e (metric tons of carbon dioxide-equivalent), up from USD 7.35/mtCO2e the previous year. This price increase is expected to encourage a shift toward greener economic practices.
Key Takeaways:
- In 2023, compliance emerged as the largest type segment and accounted for 97.40% of the revenue share. Several advantages due to regulated policies generated by governments are supporting the market growth.
- In 2023, the avoidance/reduction projects segment accounted for the largest share of 66.41% in the global market for carbon credits. The growing number of renewable energy projects requiring carbon offset is expected to augment market growth over the forecast period.
- The U.S. emerged as the largest carbon credit market in North America in 2023. The carbon credit market is primarily driven by a combination of state-level programs and voluntary markets in the country.
- In Europe, the UK emerged as the largest country in terms of revenue generation for the carbon credit market, with a share of 38.39% in 2023. Supportive government policies and frameworks toward the positive scaling of emission trading schemes are fostering regional growth.
- In 2023, the power segment in the end-use category dominated the global market for carbon credits with a share of 22.60%. Increasing investments in the power sector, along with the capture of carbon to enhance the trading platform, will further support segment growth over the forecast period.
