Consumer carbon offset market faces a knowledge gap

When you think of carbon offsets and individual consumers, what normally comes to mind are airlines giving passengers the option to offset the emissions involved with jetting off on holiday, or taking a business trip. Other parts of the travel industry, such as the hotel sector, have begun offering carbon offsets to their customers. By and large though, offering carbon offsets has been the sole preserve of the travel industry.

That could change during the rest of the decade as other industries tap into increased consumer willingness to pay for the carbon cost of the products and services they consume. According to recent research by Deloitte, the food, transportation and entertainment industries are prime candidates to offer carbon offsets to their customer base.

The consultancy believes that spending on carbon credits by consumers in developed economies could hit $115 billion per year by 2030. To put that in some kind of perspective, the total value of the voluntary carbon market in 2022 was a mere $2 billion. If their 2030 projection becomes even remotely true it would mean that direct consumer purchases of carbon credits will become the primary driver of funding towards carbon avoidance and removal. Here’s Deloitte’s rationale behind their estimate:¹

“About 40% of US consumer spending on goods and services could incorporate an option to purchase carbon offsets, particularly in the categories of food, transportation, and entertainment. If only 0.5% of these expenditures include a supplemental offset, Americans could spend US$21.3 billion a year to mitigate the environmental impact of their purchases by 2030, adjusting for expected inflation. If other developed economies mirror these habits, their consumers could collectively pay US$115 billion to offset goods and services at decade’s end.”

Remember that an optimal Pigouvian tax (of which carbon pricing is an example) is where the full marginal cost of the negative externality (i.e. the social cost of carbon or the cost of carbon abatement) is passed through to the final consumer. By making the cost of the associated emissions transparent to the consumer, he or she can then make an informed decision about whether to purchase a less carbon intensive product or not, and / or push the company selling it to decarbonise more rapidly.

So bearing that in mind, how does Deloitte’s projection stack up against other indicators of market demand for carbon offsetting by individuals, their willingness to pay, and crucially how much they actually pay when it comes to the crunch? Consumers may say they are willing to stump up for the cost of carbon when questioned in a survey, but that doesn’t necessarily mean they actually will when it comes to handing over their payment details at the till.