In a global economic landscape marked by sluggish growth and fiscal constraints, the demand for voluntary carbon-emission credits is on an astonishing upswing. Notably, carbon credit trading has shifted its focus from emission reduction to emissions removal. These insights emerge from BCG's latest report in collaboration with Shell.
This trend is evident by examining the growth of carbon markets in recent years. In 2021, the voluntary carbon market expanded at an unprecedented rate, reaching $2 billion, a staggering fourfold increase from its value in 2020. This rapid pace continued into 2022, with projections estimating the market will reach between $10 - $40 billion by 2030. Elena Belleti, research director at Wood Mackenzie, envisions an even more impressive trajectory, suggesting that the market could reach nearly $200 billion by 2050, especially following its inclusion in COP26 discussions.
Related: Read our blog to learn about the rise of the Indian Carbon Market.
What is driving this growth?
To better comprehend how prevailing economic challenges influence corporate carbon-offset purchasing strategies, BCG undertook a global survey encompassing over 200 environmental and sustainability executives across various industries. Additionally, in-depth interviews were conducted with more than 20 executives. Some of the notable findings of this study are:
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“Buyers see spending on carbon credits as non-discretionary and expect demand to grow”
The report states, "Despite greater economic challenges, most respondents think that the volume of emissions compensated through offsets will increase as more companies set net-zero targets." Notably, for certain types of credits, such as nature-based credits, it was found that the demand was expected to soon surpass the available supply.
As the global drive towards achieving net-zero emissions gains momentum, NbS has experienced significant growth. In 2021, more than two-thirds of the transaction value in the voluntary carbon markets was represented by carbon credits generated through nature-based projects. -
“More than half of companies surveyed expect removal credits to dominate their portfolio by 2030”. Despite their higher cost, removal credits have gained favour due to their quality and the ease of verifying their impact than with avoidance credits. The report states “ _Technology-based removals are expected to gain market share as the technology matures and becomes more affordable.”
Related: Learn more about carbon offsets and their categories in our_ introductory blog to carbon credits and markets.
The Carbon Credits Credibility Conundrum
Amidst this remarkable growth lies a series of challenges that currently impede carbon markets from reaching their full potential. One of the major challenges in this regard is establishing the credibility of carbon offset projects, especially as apprehensions regarding greenwashing and the legitimacy of voluntary carbon credits (VCC) have surged. The apprehensions arise from a range of factors, primarily the lack of transparency in offset projects, which has raised questions regarding the environmental integrity of these projects.
For instance, the recent investigation into Verra, the world’s leading carbon standard, has caused a stir in the carbon trading market and has raised significant concerns for companies relying on offsets as part of their net-zero strategies. The investigation undertaken by the Guardian, Die Zeit and SourceMaterial, revealed that “based on analysis of a significant percentage of the projects, more than 90% of their rainforest offset credits – among the most commonly used by companies – are likely to be ‘phantom credits’ and do not represent genuine carbon reductions.” While Verra has strongly contested the findings, it has brought to light a broader issue of eroding trust in carbon markets.
Similarly, in China, on-site inspections conducted by 31 working groups unearthed instances of information tampering by several emitters and reporting and audit service providers. This highlights another significant issue within the carbon market contributing to the eroding trust: data fraud.
Related: Learn more about the challenges plaguing the carbon market in our blog “Introduction to Voluntary Carbon Markets.”
🔎 In this climate, there is a growing need for more transparent and verifiable data to provide stronger evidence of the impacts of carbon sequestration projects and guarantee accurate and honest measurement of their impact.
Exploring Space-Based Solutions
The advent of satellite-based MRV (Monitoring, Reporting, and Verification) presents a pragmatic solution to address these challenges. It offers a data-driven approach that transcends geographical limitations, providing independent, high-resolution data to scrutinise emissions reductions and validate carbon offset projects. It has become a pivotal tool for enhancing trust and integrity within the carbon market, aligning environmental objectives with verifiable outcomes.
Today, in conjunction with AI, satellites equipped with remote sensing technology provide independent and high-resolution data on carbon sequestration in diverse ecosystems such as forests and wetlands. This data is instrumental in monitoring project implementation and accurately estimating carbon stored in forests, utilising factors like canopy height, vegetation density, and tree species. Through appropriate machine learning models, these observations translate into precise carbon estimates, thus making these insights transparent and verifiable.
This can go a long way in helping expand the reach of carbon markets.
The importance of efficient MRV in this regard is reflected in another notable finding from the BCG’s survey which found that “a reputable monitoring, reporting, and verification (MRV) framework is a top criterion for purchasing credits”. More than 90% of buyers identify MRV as a critical factor influencing their credit purchase decisions. As the focus on carbon offsets intensifies, buyers are increasingly inclined to ensure that the credits they acquire are both demonstrably impactful and defensible to accusations of greenwashing.
Related: Read our blog “Bridging the Trust Deficit in the Carbon Market through Satellite based Monitoring” to learn more.
Further, with its myriad transformative features, satellite technology can play a pivotal role in scaling the carbon market by addressing several key challenges and enhancing its functionality. Here's how:
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Efficient Monitoring: Satellites provide a cost-effective and efficient means of monitoring emissions reduction measures. They can capture the impact of these measures with high-resolution data, which is crucial for tracking the progress of projects and ensuring that they are on target.
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Enhanced and Quick Verification: According to an estimate, verification delays can potentially cost VCM project developers about $2.6 billion. Satellite-based verification processes are much quicker than traditional methods, reducing delays and costs associated with verification. In addition, this verification is critical to building trust in the market, as it assures buyers and investors that the purchased offsets represent genuine, measurable, and additional emission reductions or removals.
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Increased Transparency: Satellite data contributes to the transparency and accountability of the carbon offset market. It allows stakeholders to track and evaluate the effectiveness of emissions reduction efforts, making the market more transparent and attractive to a wider range of participants.
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Data-Driven Decision-Making: Satellite data, when integrated with artificial intelligence and machine learning, enables data-driven decision-making. This can lead to more efficient allocation of resources, better project selection, and a more effective carbon market.
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Market Integrity: By ensuring that offsets are legitimate and that projects deliver the intended environmental benefits, satellite data helps maintain the integrity of the carbon market. This is essential for attracting and retaining both buyers and sellers.
In this regard, the benefits offered by satellite-driven Digital MRV are poised to facilitate the growth of the carbon market.
Related: Read our blog "Leveraging Satellite-Based MRV for Carbon Projects” to learn more.
Carbon Intelligence for the Burgeoning Carbon Market
Transparency is the key to scaling carbon markets, and our solutions at Blue Sky Analytics provide unmatched data-backed credibility and transprency to ensure the markets growth. With our cutting-edge Digital MRV systems, we're redefining how carbon offset projects are monitored and evaluated. With the help of satellite data, AI and cloud-based solutions, we can help measure the impact of land-based carbon sequestration projects at all scales, from small agri-farm level projects to large reforestation initiatives that extend over large geographical areas, including states and countries! The dataset covers a wide range of sequestration projects that include conservation, reforestation, and regenerative agriculture, among others. Using satellite data, we quantify sequestered carbon across the relevant geographical area and estimate the amount of carbon stored in forests by considering factors such as the type of trees, their size, canopy height, density of vegetation, and other critical factors that impact carbon sequestration. Combined with cutting-edge machine learning models, we process these vast reams of data to get sound carbon estimates.
Whether you're a:
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a company looking to verify the legitimacy of a project's claims
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State government looking to harvest carbon credits from your forests
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Project developer looking for appropriate sites for new carbon offset initiatives or track the advancement of existing projects
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Credit registry that wants to improve the integration of satellite mapping into credit allocation or a
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Verification body that wants to check if the projects are delivering what is claimed
Our dataset offers you scalable and cost-effective solutions that can ensure additionality, minimize leakages and help measure the impact of your carbon offset initiatives.With our dataset, stakeholders can be confident in the integrity and reliability of their carbon offset projects and make informed decisions about allocating their resources to maximize carbon sequestration and credits earned.
We are committed to improving the versions of this dataset over time, adding SAR data and high-resolution satellite data from private players. This dataset is a building block in our vision to build the world’s largest spatially and temporally continuous datasets on key environmental parameters and transform the monitoring, diligence, and risk assessment systems in India and globally.
