Being able to accurately gauge the potential size of a rapidly growing market is vital if investors aren’t to waste precious capital developing businesses, especially if better risk-adjusted opportunities are available elsewhere. The voluntary carbon market (VCM) is one such business where investors periodically question just how big the market could become.
I like the thought process, but when talking about "market size" I am missing the discussion of what that actually means. Is it tons issued multiplied by some benchmark price (or multiple benchmarks depending on the type of ton)? Is the the tons contracted per year (eg if I sign a 5 year deal in 2024 worth 50m USD starting to deliver in 2027 - does that count towards the 2024 "market size"?). Does "market size" account for "churn", ie if the same ton trades several times before being retired? And lastly: When we talk about VCM: do we really on;ly mean credits retired by voluntary buyers, or do we actually mean project-based reductions (which could be Art 6, or used for tax, or be imported in compliance schemes). If the latter, the size could be much bigger than strictly voluntary use.
Here is a quick and dirty calculation that get me to over one trillion USD market size, just an an example:
- we need to reduce ca 25bn to get to 2030 target
- Let's assume 20% is financed through project-based carbon credits (not only VCM) = 5bn tons. (This assumes 80% would come from regulations, taxes, subsidies and behaviour shift)
- 5bn tons at average USD 50/ton in 2030 = 250bn USD
- Let's assume deals are on average 3 year strips = 750bn USD
- and they tarde at least once before retirement = 1.5bn USD
Of course we won't be able to reduce 25bn by 2030, but I think this illustrates that just looking at issued volume and voluntary retirement fails to capture true monetary market size potential.
This is a super interesting man made mechanism to add the environment onto business accounting books. Polluting the air should be a cost just like polluting anything else. Trading carbon doesnt happen, only voluntarily having people repair forests or subsidize pollution scrubbing or sequestering exists. The carbon market seeks to ascribe value and as an economist might say scarcity and demand. But what is scarce? Not people developing projects, not removal companies. Buyers are scarce because carbon actually isn't. And people are pumping it out of the ground way faster that we could ever put it back. This market I have watched for 30 yerars. People will trade anything if there is a delta. There really is no valid economic reward for buying carbon other than saying you did. Legal rules or reporting might be a thing? but until it is something that affects stock price like nayother cost of doing business this is not a trillion dollar market. Everyone is betting that the pyramid thing will happen and eventually laws will happen and that will cause scarcity for the projects, but still there will be no more than words for the buyer. I would love to have a long chat or see one about this... SOmetimes I feel like its complete BS then I see people sell cradits and reestiblish forests or buy emissions scrubbers? I wonder if anyone can show the accumulated good of credits....
So basically we're creating administrative make work jobs to replace the ones that AI will eliminate? Hydrogen is also a greenhouse gas that's very hard to contain, so there's a whole other molecule to add to the list. The whole thing has the ingredients for the Perfect Scam. Monitoring, measuring, certifying and trading something no one can see other than as lines on a chart and data in an ever growing network of data centers. With no way to really tell whether it makes a difference since we don't have hard baselines to measure progress, and since Nature introduces large unexpected events that have more impact than years of human activity.