Voluntary corporate commitments are main growth driver

The increasing demand for carbon credits is mainly driven by voluntary climate targets from the corporate world. The corporate plans for achieving these targets, however, vary in terms of scope, coverage, timelines, and intended use of carbon credits, however, it’s mostly the growth in net zero corporate commitments that are driving demand in the voluntary carbon market segment.

Corporations are using different terms for their climate commitments; others include net zero, zero emissions, carbon-free, carbon neutrality, and climate positive, among others. As the significance of carbon removals is emerging, many market participants call a large part of the “nature-based solutions (NbS).” NbS provide projects that protect, transform, or restore land that absorbs CO2 emissions from the atmosphere becoming eligible for the issuance and sale of carbon credits.

The growth in net zero targets has accelerated rapidly over the past years. Corporations can voluntarily buy carbon credits to contribute toward meeting their climate targets, to compensate for emissions, or to remove unabated emissions. The UNFCCC’s Race to Zero initiative now reports that 5,235 companies have made a commitment of this type, and pledges by Global Fortune 500 companies grew 17% between 2020 and the end of 2021. The sector level also shows progress-notably in the International Air Transport Association recently announced a voluntary net zero target for the aviation sector by 2050.102 Under current plans, 19% of the target will be met with carbon credits.

Large corporate purchasers in 2021 came from a range of sectors:

1. Energy companies, mainly large oil and gas firms, led the way in purchasing credits, with their demand increasing ninefold compared to the previous year.

2. Food and beverage and tourism companies have also purchased carbon credits, and other consumer goods firms are also active buyers.

3. The Financial sector significantly increased its carbon credit purchases, as banks set climate targets for their operations and other financial institutions act as intermediaries for their own corporate clients and as speculators from the market. This trend was bolstered by the 2021 launch of the Glasgow Financial Alliance for Net Zero, a coalition grouping of financial institutions representing around 40% of global banking assets that have voluntarily committed to a state of net zero emissions.