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Why are Carbon Offsets Valuable?

Learn the reasoning behind carbon offsets becoming a valuable asset.

Greenwashed

Nov 2, 2022 • 3 min read

Often confused with the similar environmental accounting mechanism of carbon credits, carbon offsets are another rapidly growing industry. In late 2021, the market surpassed $1 billion, leading many people unfamiliar with the topic to wonder why carbon offsets are so valuable.

If that same question is in your mind, you’re in the right place.

The Offset Market

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Recently, the carbon offset market has exploded.

Many big-name institutions, from Google to Microsoft to the British government, have been purchasing mass amounts of offsets to counteract the effect of the emissions they produce. Companies around the globe are beginning to impose sustainability goals; popular among corporate sustainability goals is the commitment to becoming net-zero by 2030 or by 2050.

The reality of these goals is that carbon offsets are a necessary part of them.

It takes time for sustainable technology to develop and scale. Even if a company can implement green technology, it would be almost impossible to account for all of its emissions, especially Scope 3, the most indirect form of emissions. Due to this, carbon offsets are a necessary part of the path to sustainability.

With carbon offsets being integral to the future of many corporations, there is an anticipation of a sharp rise in their future price. Bank of America estimates that achieving net-zero would require a fiftyfold increase in demand for carbon offsets.

Predictions such as those may be conservative estimates since the demand for carbon offsets is also related to the success of the fight against climate change, which, if you haven’t heard, isn’t going well.

With current ways of fighting climate change proving ineffective, carbon offset markets will become increasingly essential to the fight for our planet. Many analysts expect the offset market to grow to at least $25 billion by 2030 and around $100 billion by 2050, making the offset market one of the world's most widely predicted growth markets.

Why Are They Valuable?

So, the market is primed for a boom in price, but what creates that demand? Why do so many companies seem likely to pour money into carbon offsets? What makes them valuable?

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The simple answer is the same reason anyone buys anything: self-interest.

Carbon offsets are marketed as a noble deed you can do to help the environment. That is not even close to the whole story. While it’s true that offsets help the environment, the reality is that self-interest is the real driver of demand for carbon offsets.

Generally, companies only care about the bottom line. That incentive now aligns with the fight against the climate crisis.

Our changing climate will affect everyone worldwide, including corporations and their necessary operations. Companies usually don’t want to spend money on something which will not provide an immediate, direct return. Still, they also don’t want their operations to be disturbed by the effects of climate change.

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For example, Starbucks is responsible for many emissions in its supply chain, but its business model is relatively climate-neutral. So, even though they aren’t contributing to climate change like an oil company, Starbucks finds itself with an equal level of business-threatening risk due to the climate crisis. As a result of warming temperatures, coffee bean and tea leaf production faces a significant drop, with the UN predicting up to a 50% reduction by 2050. These reasons entice Starbucks to aid in the climate crisis battle before it is too late. Their recent long-term climate pledge includes supporting carbon offset projects.

Starbucks is just one example, but most corporations in the world face major threats stemming directly from the impacts of our changing environment.

Carbon offsets are the best immediate tool to combat the climate crisis, so they are corporations' widely expected option. Essentially, corporate demand for carbon offsets is about to increase rapidly, and the value of carbon offsets is directly related to corporate demand.

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Historically, corporate demand is a good thing to have in your corner. Nobody should be shocked if carbon offsets become the highest-rising asset class of the next decade.

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