EDITORIAL: Positive projections for carbon, but beware of those ideologically opposed to climate policies

Quantum Commodity Intelligence - Analysis by Quantum shows more than $1.3 billion was raised by companies active in the voluntary carbon market. The overall figure rises to more than $1.8 billion if money secured by funds to invest in projects is included in the fundraising. The total figures will be even higher than reported as several deals announced over the course of the year were for undisclosed amounts.

While we haven't done previous analysis in the past to compare the figures with, these levels of fund raising would seem relatively healthy for a market that 12 months ago was under severe criticism about its utility and integrity.

Added to this, data compiled for 2024 showed that carbon credits worth a total of $1.4 billion were used by companies last year, according to ESG ratings provider MSCI's carbon markets division. While this was less that the $1.7 billion in 2022 or $1.5 billion in 2021, MSCI said there are signs that the use of carbon credits could be on the rise again.

MSCI's latest modelling suggests that thanks to an increasing number of companies setting ambitious climate commitments as well as various positive policy and market developments, the size of the carbon credit market could jump over the next few years. The analysts reckon the market value could rise to at least $7 billion by 2030, but a ballooning $35 billion could also be on the cards, which would be a 25-fold jump.

Factors influencing MSCI's forecast include improved integrity for carbon projects, increasing corporate targets validated by the Science Based Targets initiative, airlines demand under the Corsia aviation decarbonisation scheme, and the long-awaited agreement by UN negotiators struck last year on rules for trading carbon credits under the Paris Agreement's Article 6 mechanisms.

"Together these developments could signal the turning point in the global carbon credit market many have been long predicting," MSCI said.

The lofty forecast comes against the backdrop of similarly bullish predictions over the past years by many carbon market analysts which so far have failed to materialise. It also comes against an uncertain political climate, with Donald Trump taking over the US presidency backed by a Republican party majority in both chambers of the US Congress.

Congress

Trump's views on climate and the environment don't need repeating here. But the influence of Congress shouldn't be underestimated either. In the days before publication of this issue of Carbon Insights, the Net Zero Asset Managers initiative, an international group of asset managers which had been committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, announced it had suspended its operations to carry out a review.

The announcement came a few days after investment company BlackRock departed from the initiative.

"Recent developments in the US and different regulatory and client expectations in investors' respective jurisdictions have led to NZAM launching a review of the initiative to ensure NZAM remains fit for purpose in the new global context," said NZAM.

US members of the group have clearly come under political pressure. Back in December, the US House of Representatives Committee on the Judiciary sent letters to more than 60 US-based asset managers, including BlackRock, about their involvement with the NZAM.

"The over 60 asset managers with membership in NZAM must answer for their involvement in prioritising woke investments over their own fiduciary duties," said the committee in a statement released the same day.

The use of the catch-all phrase 'woke' - 'things we don't like' - clearly shows the ideological nature of these letters, rather than anything related to fiduciary duties. However, it is clearly having an impact.

As the year develops, this may not be just in the US. For example, a general election in Canada later this year is currently looking like it will lead to a Conservative Party government that could have big implications for climate policy there. How this all filters down into carbon markets is something to watch in 2025.