Limiting global warming to 1.5°C, in line with the Paris Agreement, requires that global annual greenhouse gas (GHG) emissions are cut by 50 percent of current levels by 2030 and reduced to net-zero by 2050. In support, an increasing number of firms are making commitments to achieve their own net-zero targets. Reducing absolute emissions is the first aim, but many companies, especially in hard-to abate sectors, will need to offset emissions to reach decarbonisation goals, creating a surge in demand for credible offsets. This creates a challenge in itself, since the market is still nascent.
A liquid voluntary carbon market at scale could allow billions of dollars of capital to flow from those making net-zero commitments to those with the ability to reduce and remove carbon. Depending on different price scenarios and their underlying drivers, the market size in 2030 could be between USD5 billion and USD30 billion at the lowest end of the spectrum, and up to over USD50 billion at the highest end (both ranges assuming demand of 1-2 Gt CO2).1
The scaling up of markets has the potential to support financial flows to the Global South and can also play a critical role in scaling down cost curves for emerging climate technologies, bringing these technologies to market earlier, and can be used in direct decarbonisation efforts. To accelerate the development of a market at this scale, a consortium of international finance participants, with the Institute of International Finance (IIF) acting as secretariat, established a private-sector Taskforce on Scaling Voluntary Carbon Markets (Taskforce) in September 2020. The purpose of the Taskforce is to significantly scale up voluntary carbon markets and ensure they are transparent, verifiable, and robust.
The Taskforce produced this report after a consultation across industry. HSBC are participating in the work programme and provided feedback on the consultation. The resulting blue print report identifies six key areas where efforts are required to achieve a large, transparent and robust voluntary carbon market. It also proposes a set of twenty recommendations for financial institutions. These themes are establishing core carbon principles, core carbon reference contracts, infrastructure, offset legitimacy, market integrity, and demand signalling. The Taskforce develop a blueprint for a voluntary carbon market which connects carbon credit supply to demand and ensures credibility in carbon credits being exchanged whilst being scalable to help investors as they meet the demand of more companies pledging to the 1.5°C ambition. Finally, to achieve this change the Taskforce develop a roadmap to move from blueprint to implementation building directly from the recommended actions.
1McKinsey analysis. Scenario based rather than forecast.