GLOBAL CARBON CREDIT MARKET ANALYSIS

The Global Carbon Credit market was valued at US$ 25.35 Bn in 2022, exhibiting a compound annual growth rate (CAGR) of 24.4% from 2023 to 2030.

A carbon credit is a tradable permit or certificate that provides the holder of the credit the right to emit one ton of carbon dioxide or an equivalent of another greenhouse gas – it is essentially an offset for producers of such gases. The main goal for the creation of carbon credits is the reduction of emissions of carbon dioxide and other greenhouse gases from industrial activities to reduce the effects of global warming. A carbon credit is a mechanism for the minimization of greenhouse gas emissions. Governments or regulatory authorities set caps on greenhouse gas emissions. For some companies, immediate reduction of emissions is not economically viable. Therefore, they can purchase carbon credits to comply with the emission cap. A carbon offset that is exchanged in the over-the-counter or voluntary market for credits is referred to as Voluntary Emissions Reduction (VER). Whereas, emission units (or credits) created through a regulatory framework with the purpose of offsetting a project’s emissions are called Certified Emissions Reduction (CER). The main difference between the two is that there is a third-party certifying body that regulates the CER as opposed to the VER.

International carbon credit is being adopted by various countries and state government bodies, which is a major trend in the global carbon credit market. The Kyoto mechanism is vastly adopted by the European Union, for which the European Union launched European Union Emission Trading Scheme (EU ETS) in 2015. Through this, EU employs a basic cap and trade model for EU companies and countries. However, the government of the U.S. did not sign the Kyoto Protocol, thus there is no cap limit for carbon emissions in the country. Nevertheless, many companies and state government bodies are adopting voluntary commitment to reduce carbon emissions.

Global Carbon Credit Market: Regional Insights

 Europe held a dominant position in the global carbon credit market in 2022, accounting for 51.2% share in terms of value, followed by North America and Asia Pacific. Europe is expected to account for the largest market share during the forecast period. The developed countries in Europe such as the U.K, Germany, and other European countries are considered prominent buyers in the global carbon credit market. In order to become climate-neutral EU by 2050, the European Union launched EU Emissions Trading System (EU ETS) in 2005, an international emissions trading system. The EU Emissions Trading System (EU ETS) initiative is divided into four timely phased manner in which carbon emission is reduced in order to reduce greenhouse gas effects by at least 40% by 2030 compared to 1990 (as per Paris agreement, initiated in December 2015).

Figure 1: Global Semiconductor Memory Market Share (%), in terms of Value, By Region, 2022

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Asia Pacific is expected to exhibit significant growth during the forecast period. India is becoming one of the emerging players in the global carbon credit market. As India's greenhouse gas (GHG) emission is below the carbon cap limit, Indian companies are entitled to sell surplus credits to developed countries.

Global Carbon Credit Market: Drivers

Government regulations around the world have implemented various regulations to reduce carbon emissions, such as setting limits on the number of greenhouse gases that companies can emit. This creates a demand for carbon credits as companies seek to meet these regulations. Corporate sustainability goals Many companies have set sustainability goals and are actively seeking ways to reduce their carbon footprint. Purchasing carbon credits is one way for them to offset their emissions and reach their sustainability targets. Public pressure Consumers are increasingly aware of the environmental impact of their choices and are pressuring companies to take action to reduce their carbon footprint. This can lead to companies purchasing carbon credits to demonstrate their commitment to sustainability.

Global Carbon Credit Market: Restraints

Addressing the triple threat of pollution, climate change, and biodiversity decline requires a shift to a circular economy. Since no one nation can successfully implement a circular economy on its own, international commerce will be crucial in facilitating this transition. The Global North currently receives the majority of the economic benefits from circular commerce, while the Global South is responsible for the majority of the environmental and human costs. Therefore, greater global cooperation is required to stop the growth of a circular trade division. Even though the circular economy is crucial to achieving the world's environmental and human development goals, few trade actors are aware of it or comprehend it.

Global Carbon Credit Market: Opportunities

Cost savings Companies can save money by reducing their carbon emissions through energy efficiency measures, renewable energy, and other low-carbon practices. They can then sell the carbon credits they generate on the market, providing an additional revenue stream. New revenue streams Companies that generate excess carbon credits can sell them on the market, generating new revenue streams. This can be especially beneficial for companies in industries with high carbon emissions, such as energy, transportation, and manufacturing. Brand reputation: Companies that purchase carbon credits can improve their brand reputation by demonstrating their commitment to sustainability. This can help attract customers, investors, and employees who value environmental responsibility.

Global Carbon Credit Market - Impact of Coronavirus (Covid-19) Pandemic

Globally, most countries are affected by COVID-19 and most of the countries have announced lockdowns. Pollution and GHG emissions have fallen across the continents as countries imposed lockdowns and restrictions to contain the spread of Covid-19. COVID-19 has brought about short-term environmental benefits as a temporary reduction in carbon dioxide and other greenhouse gases, as people were forced to stay at home and industries such as mining, construction, and textiles remained closed for a period. According to the OECD (The Organization for Economic Co-operation and Development) Organization, in China, carbon emissions were reduced by 25% which is equivalent to around 200m tons of CO2 (MtCO2) in the month of February 2020, compared with the same month in 2019. Also, the pandemic has interrupted global supply chains, including those for renewable energy projects, which could delay or obstruct their completion. The carbon offset registries are also considering Covid-19’s impact on reporting period deadlines. If there are hold-ups, such as The Climate Action Reserve allowing programmatic deadlines to extend by 6 months – if the extension reason is directly Covid-19 related.

Figure 2: Global Semiconductor Memory Market Share (%), in terms of Value, By Segmentation, 2022

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Among sector, the energy segment is expected to hold dominant position in the global carbon credit market during the forecast period. For instance, according to Coherent Market Insights’ analysis, energy segment accounted for around 53.3 billion across the globe in 2019. Solar or Wind power is used to inject power to the grid, this can replace the power generated from the conventional energy sources thereby reducing the carbon dioxide emissions. Such projects can earn carbon credits in the form of Clean Development Mechanism (CDM) projects. The global carbon credit market was valued at 25.35 Bn US$ in 2022 and is expected to reach  145.04 Bn by 2030 at a CAGR of 24.4% between 2023 and 2030.

Major players operating in the global carbon credit market include WGL Holdings, Inc., Enking International, Green Mountain Energy, Native Energy, Cool Effect, Inc., Clear Sky Climate Solutions, Sustainable Travel International, 3 Degrees, Terrapass, and Sterling Planet, Inc.

*Definition: In a nutshell, carbon markets are trading systems in which carbon credits are sold and bought. One tradable carbon credit equals one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas reduced, sequestered, or avoided