An increasingly complex set of initiatives, frameworks, regulations and policies will set prices, which will in turn inform the total supply of carbon offsets in the market.
Global emissions from all sources today is just over 51 billion tons a year, so offsets could be a significant part of the global carbon cycle.
Companies can purchase any type of offset from any existing project in any market in the world — it doesn’t need to correlate with a company’s emissions or where it’s located.
Without regulation, many companies purchasing credits in bulk for as cheap as they can find, be it from large hydropower projects in India or natural gas plants in China.
An over-supplied, dubious-quality global market would unsurprisingly have something of a legitimacy problem too, as both proponents and potential opponents clearly identify issues.
The second scenario BNEF looks at is a so-called removals scenario, which only allows companies to purchase credits from the removal of CO₂ in order to hit their sustainability targets.
It allows nature-based solutions such as reforestation and afforestation and necessitates direct air capture technologies that pull CO₂ from the ambient atmosphere.
The carbon removals-only scenario has an immediate spike in prices to more than $200 a ton, before eventually reaching a plateau above $100 a ton by mid-century.
Conversely, a removals-only market with prices above $200 a ton is functionally indistinguishable from a tax or price on carbon, which would certainly change industrial behavior and create new winners in the race to deeply decarbonize.
As ever, all models of this duration will prove to be off the mark in currently unpredictable ways.