Law and Order: Voluntary Carbon Markets

Businesses show signs that transitioning to a net-zero economy will take longer than expected, with many companies already falling short on ESG (environmental, social, and governance) goals. Since the Industrial Revolution, humans have emitted unprecedented amounts of carbon dioxide, which has an atmospheric lifespan that lasts centuries and has intensified the greenhouse effect. We are currently adding more carbon dioxide from anthropogenic sources than is being removed. The voluntary carbon market (VCM) offers financially plausible and potentially lucrative ways for businesses to reduce and remove their emissions, presenting a promising future for financial opportunities. Since VCMs are still in their infancy, the slow development of integrity standards and proper infrastructure is inhibiting stakeholders from fully capturing the benefits.

Using Bloomberg New Energy Finance and the Bloomberg Terminal, we studied compliance and voluntary market data available on those platforms. Bloomberg products provide industry news, carbon credit prices, and models that highlight significant trends in the market. Utilizing carbon registries’ public databases, we analyzed the quality of multiple offset projects and determined a fair value for the issued credits. It is critical that offset pricing transparency increases in addition to solidifying the scientific certainty of projects. Regulatory emissions trading systems around the world have successfully raised carbon prices, but voluntary markets are struggling to hold validity. To restore scientific confidence and investor sentiment in offsets, VCMs should adopt certain characteristics of compliance markets. Based

on our findings, we believe a blend of VCM and audited compliance procedures can help maximize the objects of both markets from an environmental and financial perspective. If acceptable standards and audit practices can be established, carbon markets can exceed $1T by 2030.