Compliance Carbon Markets Expected to Balloon to $800 Billion

A view of a factory producing emissions with clouds all around it

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by | Oct 30, 2023

Carbon markets are exploding, with the expected value to reach $800 billion this year, according to a recent report from BloombergNEF.

That’s a 5% year-over-year growth rate, despite slowing trade volume. The growth in value also comes amid other global upsets, including the lingering fallout from Russia’s invasion of Ukraine, the report found.

BloombergNEF is a research organization that covers global commodity markets & disruptive technologies driving the low-carbon economy transition. Compliance carbon markets are marketplaces where regulated entities trade carbon allowances or offsets to meet targets. 

Companies may purchase carbon credits to offset their carbon emissions and still meet their climate goals. One of the biggest purchasers of carbon credits is Amazon, which recently said it will purchase 250,000 metric tons of carbon removal over 10 years.

Carbon Prices on the Rise

The drop in trading volume is a function of the war in Ukraine, and volumes peaked in 2021 before the turmoil pulled liquidity from carbon markets. The report also noted that new markets in Brazil, Mexico, and India are expected to launch and prices will continue to rise as regulators implement supply-cutting measures. 

Specifically, BloombergNEF predicted the European Union’s Emissions Trading System estimates allowances prices will jump from around $90 per metric ton to $157 per metric ton in 2030. The California-Quebec market is expected to see prices almost double to $63 a metric ton by the end of the decade, the report said.

The price increases come as the European Union will close out the year as the largest carbon market in the world for both trade volume and value. Around 75% of global carbon market futures and auctioned volumes, around 8 billion allowances, are currently traded in the EU. In 2017, nearly 90% were traded in the EU.

“The proliferation of carbon trading across the globe has seen new primary markets auctioning allowances for the first time,” the report stated. “As a result, the EU’s share of auctioned volumes has fallen from 73% in 2017 to 53% this year.”

Other factors putting a damper on trading volume, which mostly takes place in the futures market, include policy uncertainties surrounding carbon market reforms and higher interest rates.

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