Winter Timber Sale

Carbon credit market sees huge growth in 2021, average price jumps

The growth has caught the eye of Wall Street

MADISON, Wis. -- The market for voluntary carbon credits is poised to exceed a billion dollars this year according to a report published by Ecosystem Marketplace, a Washington, DC organization that partners with verification organizations like Verra and American Carbon Registry, and organizations that broker carbon credits like Vertis.

In 2021 (through August 31), forestry and land use became the largest source of carbon credits, surpassing renewable energy. The price per ton of carbon sequestered from voluntary forest carbon projects this year has been $4.73, more than four times the price per ton for renewable energy projects.

The prediction is based on growth to $748 million by August 31 this year, a pace that is nearly doubling the value of voluntary carbon credit transactions in 2020, the report said. The average price of a carbon credit is up almost 25% from 2020, returning to 2019 levels after a drop during the pandemic. Ecosystem Marketplace collects data from nine carbon credit registries.

Voluntary carbon credits are offsets that are purchased in the absence of any regulatory requirement. This market is separate from carbon markets that operate under the rules established by government regulation (including from the European Union and the state of California).

The number of credits available on a forestry project is calculated by a mix of factors including forest volumes on a tract of land over a period of time compared to a baseline that might occur if harvests or land development that would happen if a carbon sequestration contract were not in effect.

Forests retain massive amounts of CO2, and the capacity to retain CO2 increases with forest growth. Carbon is also retained in wood products like furniture or structural lumber even after forest harvests making forest sequestration particularly effective at offsetting C02 emissions.

Some recent developments on announced carbon projects on mixed hardwood forests (like many in the Lake States) have slowed this year as the organization managing the projects reevaluate their efforts to establish an accurate baseline. Factors like forest management plans, state regulations and limits imposed by conservation easements complicate this process. The complex nature of naturally regenerating mixed species forests makes a baseline projection more difficult than in a more uniform age plantation style forest.

Energy, technology, finance and consumer goods companies have been substantial buyers of carbon offset credits. Having established and promoted goals for reducing their responsibility for carbon emissions, they are now buying carbon offsets as a way to meet their pronounced goals.

The growth and increased scale of the carbon market has caught the eye of Wall Street firms.

The NASDAQ exchanged pointed out the trading of a new electronically traded fund (ETF) Krane Shares Global Carbon ETF as evidence of the growth of this market, The fund totals $535 million and its shares are up over 50% this year. It tracks the regulated (not voluntary) carbon credit market.

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