Carbon credits, also known as carbon offsets, are certificates demonstrating that emissions of carbon dioxide and other greenhouse gases have been reduced or avoided. They are being increasingly used by governments and companies as a tool for meeting emission reduction targets and goals established by regulations and climate agreements. Carbon credits can be earned by activities like afforestation, renewable energy projects, improved forest or agricultural management, and more. The credits can then be sold to entities that exceed their allowed emissions in order to compensate for the excess.
The global carbon credit market is estimated to be valued at US$36.34 Mn in 2024 and is expected to exhibit a CAGR of 3.0% over the forecast period 2024 to 2031, as highlighted in a new report published by Coherent Market Insights.
Carbon credits have emerged as an effective financial incentive to reduce greenhouse gas emissions and mitigate climate change. Stringent government policies and regulations related to carbon emissions across major economies are fueling demand from power producers, industries, and other entities. Countries like China and India have established domestic carbon trading platforms in recent years in line with their climate commitments under the Paris Agreement.
Market Dynamics:
One of the major drivers for the growth of the global carbon credit market is the stringent regulations governing carbon emissions introduced by various governments and international organizations. Failure to meet emission reduction targets can lead to heavy fines and penalties. This has motivated organizations in high-emitting sectors like energy, transportation, heavy industry, and commercial buildings to invest in carbon offsetting initiatives. Demand for carbon credits is expected to significantly rise over the forecast period as more jurisdictions announce tougher carbon emission standards to curb climate change. The market is also benefiting from the growth of voluntary carbon markets and expansion of trading platforms. Companies are increasingly looking to neutralize their carbon footprint and gain a competitive edge through procurement of voluntary carbon credits. However, lack of consensus over a universal framework for accounting and certifying carbon credits remains a challenge for the market."
SWOT Analysis
Strength: The global carbon credit market provides opportunities for companies and countries to offset their carbon emissions. Credits can be traded internationally which allows flexibility in reducing emissions. Having a market-based mechanism encourages private sector participation in emission reduction activities.
Weakness: The carbon credit market is still in a development phase and lack of regulation and standardization across countries creates uncertainties. Prices of credits can fluctuate significantly based on supply and demand dynamics. Additional activities are needed to verify actual emission reductions from projects generating credits.
Opportunity: Many countries have pledged to become carbon neutral in the coming decades which will significantly increase the demand for carbon credits. New projects targeting sectors like transport, waste management and forestry can generate a continuous supply of credits. Innovation in monitoring and verification technologies would help address current challenges in the market.
Threats: Economic or political disruptions could stall climate actions and investments in emission reduction projects. Non-compliance to reduction targets by nations may undermine confidence in the carbon market. Transition to renewable energy sources can potentially reduce the need for offsetting in the long-run.
Key Takeaways
The Global Carbon Credit Market Size is expected to witness high growth over the forecast period driven by concerted climate action from governments and companies worldwide. The market stood at US$ 36.34 Mn in 2024 and is projected to reach over US$ XX Mn by 2031, registering a CAGR of 3.0%.
Regional analysis
The European region currently dominates the global carbon credit market due to the strong emission trading system within the EU. Major emitters in the region have ambitious climate neutrality targets driving the demand for credits. Asia Pacific is expected to be the fastest growing regional market with emerging economies like China and India implementing carbon pricing initiatives.
Key players
Key players operating in the carbon credit market are ASLAN Pharmaceuticals, Takeda Pharmaceutical Company Limited, CHIESI Farmaceutici S.p.A., CSL, NIOX, Fountain Therapeutics, Eli Lilly and Company, GSK plc., Infinity Pharmaceuticals, Inc., Mabtech, Kineta Inc., Marinomed Biotech AG, Mycenax Biotech Inc., AstraZeneca, and Panacea Biotec. These players are focusing on developing carbon offset projects, trading platforms for credits as well as supporting policy formulation.
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