Global carbon offsets market could be worth $200 billion by 2050: Berenberg

The value of the global market for carbon emissions offsets could increase to $200 billion by 2050, German bank Berenberg said in a note Wednesday.

Although now relatively small, the carbon offsets market has grown quickly in recent years and could be set for further rapid growth as countries hit the limits of decarbonization, meaning they will have to rely on offsetting projects to achieve national and corporate climate targets.

"The global carbon offset market is tiny at $0.6 billion (2019) versus the much larger global carbon permit market at $44 billion (2018)," Berenberg said in the note.

"However, the offset market has more than tripled over the past three years and we estimate that the very long-term (2050) addressable market size is huge at ~$200 billion," it said.

Without carbon offsets, it is impossible to achieve net-zero emissions long-term commitments for a rising number of companies, cities and countries, the bank said.

"We therefore believe that the global carbon offset market will likely continue growing at its rapid current rate over the next five years," it said.

Carbon offsets can include land-use projects which absorb carbon, for example forests and marshland development programs, or changes to cleaner energy or industrial technologies that would otherwise not be economical.

Carbon offsetting systems have had a mixed history, with many projects drawing criticism from market observers over doubts over whether the reductions were additional to business as usual. Those included some projects in markets established under the United Nations, such as the Clean Development Mechanism, as well as voluntary offsetting systems.

However, Berenberg said the previous weaknesses around some offsetting projects will likely be addressed as the systems attract larger actors.

"We expect the quality of offsets will improve as large, well-regulated, publicly listed companies are set to invest hundreds of millions of US dollars in offset project development," it said.

Currently, the market is dominated by small private companies and carbon offset generation has been historically beset by scandals, the bank said.

Until this year, the aviation sector had looked to be one of the largest buyers of carbon offsets, through the UN's Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

However, that all changed with the coronavirus outbreak this year, Berenberg said.

"We do not think that CORSIA will now generate any meaningful demand for offsets over the next three years because of the slump in aviation activity where recovery might take years. We think that sectors such as food and beverage, technology, oil and gas, where companies are increasingly setting net-zero targets, will drive the demand for offsets," it said.

Rising additional offset revenues will likely improve the economics of offshore wind and carbon capture and storage (CCS) projects, it said.

"This will likely contribute growth for companies with CCS technology such as Air Liquide, Air Products, Linde and Aker Solutions, and for offshore wind project developers, such as Vestas and Siemens Gamesa," it said.

"We also think that the sale of carbon offsets to third parties could potentially become another revenue stream for the likes of Shell, BP, Eni and Microsoft, which are planning to invest heavily in carbon removal projects over the next five years," Berenberg said.

"This depends on whether they decide to monetise these projects instead of just using them for nullifying their own emissions," it said.