Sliced: Carbon Credit Prices Across the Voluntary Carbon Market

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For carbon credit projects to be impactful, sustainable, and profitable, carbon credits need to be priced appropriately for both buyers and sellers. If prices are too low, the projects will likely struggle to generate the necessary revenue to cover costs, leading to potential failure. This could hinder the development of effective carbon avoidance or reduction projects, especially those that require significant investment. On the other hand, if carbon credit prices are too high, they may become unaffordable for many buyers. This would limit demand and reduce the overall success of the market as a method for addressing greenhouse gas emissions.

Striking the right balance helps achieve meaningful environmental and social impact while attracting sufficient market participation. This is key to creating a sustainable and profitable system for stakeholders involved in carbon markets. This delicate balance prompted us to examine carbon credit prices across the voluntary carbon market (VCM).

The VCM, where businesses voluntarily buy carbon credits to offset emissions, has seen significant volatility in recent years. Nevertheless, average VCM credit prices have reached their highest point in 15 years. Between 2021 and 2022, the average price per credit jumped by 82%, increasing from $4.04 per tonne to $7.37. In 2023, however, the average price slightly decreased to $6.97 per tonne.

So far in 2024, tech-based removal credits, the most expensive on the market, have been trading between $200 and $400 per tonne. Nature-based removal credits have ranged from $20 to $25 per tonne, while avoidance credits have traded between $1 and $5. All of these represent weighted average prices. Since January 2023, prices for tech-based removal credits have remained within this range, nature-based removal credits have seen a gradual increase, and avoidance credit prices have steadily declined.

A growing demand for higher-quality credits is leading to a price premium for projects that deliver additionality, permanence, and co-benefits such as biodiversity protection. Credits that incorporate strong environmental and social benefits generally attract a substantial price increase. However, concerns about market integrity, especially regarding older vintage credits, have led to price discounts for some types of credits as buyers demand more rigorous standards and verification.

Presently, nature-based removal and engineered removal projects are favored by market actors. And projects with at least one certifiable co-benefit often see prices around 70% higher than those lacking such certifications.

It’s still too early to gauge the full impact of the Core Carbon Principles (CCP) from the Integrity Council for the Voluntary Carbon Market (ICVCM) on carbon credit prices. While the initiative is still in its salad days, these CCP-labeled credits are expected to raise the standard for credit quality which could potentially drive-up demand and create a price premium.

The future of the VCM points to growing interest in top-shelf credits as standards tighten. The CCP-label and similar initiatives are aiming to enhance market integrity by establishing crystal clear quality benchmarks, while buyers are increasingly prioritizing credits with strong co-benefits, additionality, and permanence. This shift is likely to widen the price gap between high- and low-quality credits, with lower-quality projects facing discounts.

As corporate climate commitments grow, the demand for carbon credits is expected to increase, potentially driving prices higher. As the market continues to evolve and mature, understanding carbon pricing trends will be essential for businesses and investors. For those interested in exploring these dynamics further, we are always available to discuss.

Climate Week NYC is coming up! The event this year runs from September 22 to 29. 

Sean will be there from September 22 to 25 to attend a number of events and meetings.

On Monday, September 23, he is part of an organizing committee for an all-day event – Catalyzing Carbon Finance for High-Quality NCS Projects – with American Forest Foundation (AFF), The Nature Conservancy (TNC), Business Alliance to Scale Climate Solutions (BASCS), and the Symbiosis Coalition.

On Tuesday, September 24, he will attend the Climate Group’s event – $200 Trillion and Beyond: How Can Catalytic Capital Address the Missing Climate & Nature Trillions? 

On Wednesday, September 25, he plans to attend the Equal x Fenwick x Mercury event – 2024 Climate Capital Summit — and the Sierra Club’s event – Shifting Trillions Forum: Cutting-Edge Tools for Foundations and Institutional Investors. He will fly to London the evening of the 25th.

If you want to connect for a meeting in NY, email him at spenrith@gordianknotstrategies.com.

Also, Sightline Climate (CTVC) built an amazing open list of all the events. You can check it out here.

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