Guernsey Press

Cost of carbon offsetting could double by 2030 – report

Companies were being warned they may fail to reach their net-zero targets if they do not consider rising offset prices.

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The cost of carbon offsetting could double for companies by 2030, new analysis has indicated.

A report, published by Price Waterhouse Coopers (PwC), found that FTSE 350 companies publicly reported voluntary carbon offset purchases totalling £38 million in 2022.

But analysis of BloombergNEF forecasts suggests that this same volume of offsets could cost companies more than £154 million – an increase of 256% – by the end of the decade.

The findings have prompted warnings that companies may fail to reach their targets if they find them unaffordable in future, having failed to consider rising offset price rises in their strategies.

At least 80% of the volume of offsets reported to have been bought by FTSE 350 firms in 2022 were classed as “avoidance offsets”, which come from projects that avoid environmental impact, like renewable energy or deforestation.

But there is growing momentum that avoidance offsets are not fit for purpose and only removal offsets – those generated from projects that extract or permanently store CO2 from the atmosphere – should be allowed.

They found that price rises were even sharper, with the same volume of voluntary offsets purchased in 2022 for £38 million costing £483 million by 2030 – a 1,051% increase.

Prices under this scenario were also forecast to continue rising to a peak of £2.6 billion in 2037.

The energy sector alone could see an average of 8.5% of 2022 gross profits being spent on removal-only carbon offsetting by 2037 under this forecast, the researchers said.

“Companies across all sectors must consider the potential financial impacts of rising offset prices as part of their net-zero planning,” Ian Milborrow, sustainability partner at PwC UK, warned.

“There are a number of steps that companies can take to address these challenges, including making longer-term offset purchase agreements, developing internal carbon-pricing mechanisms and, wherever possible, focusing on decarbonisation to reduce their exposure to future offset price rises.

“In addition, clear, consistent disclosure of a carbon-offset purchasing strategy through annual and sustainability reporting – within the limits of commercial sensitivities – will provide critical transparency and reassurance for investors.”

An individual, organisation or company can buy carbon offsets as a way to fund decarbonisation projects and technology in place of taking actions to lower their own emissions.

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