This is Dana Perkins and you're listening to Switched on the BNAF podcast. Twenty twenty three was a tumultuous year for the voluntary carbon market, with highs and lows. There was constant public scrutiny and high profile scandals that undermined investor confidence. Meanwhile, despite the turmoil, the carbon offset market actually grew to a record size, surpassing the previous high set in twenty twenty one. This same year, companies retired
a wopping one hundred and sixty three million carbon credits. However, global agreement on carbon credits failed to get traction yet again at COP twenty eight in Dubai, and fears over greenwashing continue, making twenty twenty four a potentially make or break gear for the sector. So what is it going to take to see stability and growth for carbon offsets?
Today we're going to talk about bnif's a recent twenty twenty four edition of the Long Term Carbon Offsets Market Outlook, where we put to the test several scenarios on how this market could play out in the longer term. On today's show, I'm joined by the head of sustainability research for the America's and Emia Kyle Harrison and bnaf's Carbon
Offsets analyst Leila Kanfar. We review three of the nine scenarios that they looked at in this report and discuss whether they spell success, steady growth, or a disaster for the offsets market. To access our long term Carbon offsets outlook for twenty twenty four, BNIF subscribers are going to be able to find this at BNAF dot com or BNF go on the Bloomberg terminal. Subscribe to this show for updates when we publish future episodes, and give us
a review to share us with others. But right now, let's talk to Kyle and Laila about the outlook for carbon offsets. Kyle, thank you for coming back to the show today.
Yeah, thanks for having me.
Danna and Layla, thank you for coming as well.
Thank you for having me.
So we're here for an update regarding voluntary carbon markets and what is happening in that space. Let's start by looking back. We recently did an update and we're thinking about twenty twenty three. So the year that just closed, there were some notable things, not all of them good, that happened in that year. Can you give us a bit of a highlight of some of the things that happened in the voluntary carbon market space that are helping us really think about it and are shaping its future.
Well. To start, we faced a lot of media scrutiny against the market in twenty twenty three. We saw major headlines that just put buyers and other market players off from the voluntary market, and this really forced people to think what else could we do better in that market? But following the media scrutiny, it kind of materialized into something more. We saw big companies getting sued because they use carbon offsets, so it was a continuous cycle of
media scrutiny, some lawsuits. The prices have dropped as well, and that just spread a lot of discussion and concerns around whether this market is even viable or if it should play a role in the energy transition at all legitimate. But again, towards the end of twenty twenty three, we saw a bigger push for standardizing that market and addressing those concerns, and it mainly came from private and independent organizations.
There was a lot of hope for a un lad body to standardize it, but those discussions have fallen or fell apart at cop twenty eight.
Yeah, and just to add to what Leilah is saying, so, I think it was kind of a year of two halves. Right in the beginning of the year, as Leila mentioned, there was an article from The Guardian about a lot of forestry projects. We're creating these carbon credits, right, these verified emission reduction certificates that were not actually additional or they were never actually being created in the first place.
But things really did start to pick up in a positive way in the second half of the year, and I think that all kind of came to fruition at COP twenty eight. You had all the carbon offset registries, you had some of the verification bodies and the standards come together and say the private sector needs to take a more active role in legitimizing this market. We can't just rely on the UN or government bodies to do so.
So yeah, a lot of volatility. I think one of the key indicators that we really saw that reflected kind of some of the negative thoughts and feelings about this market were futures prices. So, for example, there's a futures product for voluntary carbon offsets called n GEO trades on the CBL expanse of exchange, and what it does is it bundles together a bunch of forestry carbon credits. And at the beginning of twenty twenty three, that product was
trading at around six dollars a ton. If you fast forward to the end of the year, it was trading a closer to forty cents a ton. So that reflects a lot of buyer sentiment in this market over the past twelve months.
I mean, that's a pretty wild shift. But even then, what you guys have just laid out is the fact that this is a fundamental questioning of the role of voluntary carbon in a net zero future. So let's kind of break this down a little bit. So part of it is the media scrutiny, which is something that is not new. A view on greenwashing and whether or not certain projects will be additional are things we've talked about on this podcast, I think with both of you, maybe
not at the same time. This is in our first podcast about voluntary carbon, but it's clear that this really kind of came to a head in twenty twenty three. So then you have this then second part of the conversation that's around standardization. Can you go into a bit more detail on well, first of all, what those bodies look like and what the progress was on the standardization front.
So the market as of right now is quite fragmented. So even if you do have those bodies that are trying to standardize the market, when they first emerged, there were a bunch of different ones and it looked like they were operating independently of each other. So it kind of just added another problem because why would you standardize something with having too many cooks in the kitchen, And we'll just end up with a more fragmented view of
the market, even if those fragments are standardized. But what happened throughout twenty twenty three, especially towards the end, is that those independent bodies started talking to each other and reconciling. So one of the major ones is the Integrity Council for Voluntary Carbon Markets, and you have another one called the Voluntary Carbon Markets Initiative, And these two try to
target the supply and demand sides of the market. So while the ICVCM looks at standardizing projects so from the upper supply side and saying they need to be additional, they need to be permanent, they need to be measurable and just accounting for all the different risk factors that would come when buying an offset. The VCMI, on the other hand, targets corporations and buyers and tell them telling
or giving them incentive to buy high quality offsets. So if you buy x percent of your offsets from this high quality project, you're going to get a gold claim for example. And now we see them talking to each other and aligning those policies with one another. So those are the two most prominent ones in the market right now. You've also got a pseudo standardization body which is the
Science Based Targets Initiative the SPTI. Now the SBTi doesn't really isn't really concerned with telling us what a good and about offset looks like, but it sets very strict science based that zero targets for companies and put some guidelines and restrictions on how many offsets they can buy and one but also if they should be avoidance or removal offsets, which is also another big debate in the market. So as of now, there are a bunch of different ones.
But towards the end of twenty twenty three, and this became very clear at cop twenty eight when they all announced collaborations to be announced or to issue those new standards in twenty twenty four.
And I would just add, when you look at the individual projects that populate this market, there's so much nuance that goes into measuring the value of a carbon credit. You know, Layla mentioned measurability before. You can have two forestry projects right next to each other, and one tree might be getting more sunlight than another tree, One tree might be slightly older than another tree, and so the
roots and the soil are stronger. All of these factors impact the overall carbon that's being sequestered by a certain plot of land. And so as a corporate buyer, when you're entering this market, you're essentially flying blind. You don't know what a good nature based project looks like. You don't know why a clean energy project in one market is better than another. And as Leila mentioned, these registries and these standards, we're not doing a good enough job
of clarifying and differentiating between individual projects. And so what these groups like ICVCM and VCMI are trying to do is set a bar or threshold for what does good look like, and theoretically anything above that bar that threshold should be buyable and tradable, and you should be able to do so without scrutiny.
So it seems like there was a bit of distrust on the part of the public and then a bit of distrust on the part of the companies buying the offsets. And that then brings me to well direct air capture, because I'm thinking about the fact that that has become a more popular technology with more money flowing into it
over the course of the last year. And it's essentially, and you can listen to our back catalog, there's essentially a machine that is sucking carbon out of the air and doing the sorts of things that trees do, but
it's a machine. And the question I have for the two of you, as people who spend your time focused on carbon offsets, do you think that direct air capture has become popular because of this accounting issue essentially that you've brought up, which has to do with the fact that it's difficult to actually come up with the math of how impactful a forestry project actually. Is there any other project that's in a nature based solution category or
do you think it's direct air capture? And the things that we are already doing from a nature based solutions universe. And then that's really what you're seeing from companies when it comes to their interest.
It's definitely a end question rather than an or question. So you're going to need all of the tools in the toolkit, or companies are going to need all the tools in the toolkit to achieve their net zero targets. They're going to need nature based solutions, they're going to need technology based removal, they're going to need carbon avoidance, they'll need carbon removal. Everything is going to play a
very important role. And what's important to note, and I think a lot of people don't necessarily connect these dots when they think about the interoperability of these different solutions, is that the primary vehicle for finance direct air capture is and will continue to be carbon credits, and the primary source of that financing is going to come from corporate buyers. And so BNF's current estimates put the cost of direct air capture today at around eleven hundred dollars
a ton on average, which is incredibly expensive. Right to give you a sense of scale, the average price or the average cost of creating a carbon credit in nature based solutions is anywhere from five to fifteen dollars a ton. So direct air capture is prohibitively expensive for most companies today. But what you're starting to see is some of these more inelastic companies, these companies with higher profit margins and
lower emissions, like Microsoft, like pharmaceutical companies. These companies are going out and they're signing forward looking contracts to guarantee a procurement of direct air capture credits over the next ten, twenty thirty years. And what that's doing is it's allowing a project to be bankable data. We've spoken on prior
podcasts about corporate clean energy power purchase agreements. This is a very similar type of structure, and what it's going to do over time is it should hopefully bring the cost down for direct air capture, but all so other technology based removals like bio energy, carbon capture and storage, and that should make it more approachable or easier for other companies to get involved in this space at a
lower price point. And so, going back to your original question, it's definitely an end question rather than an ore.
But to add to all of that is, because of the emergence of direct air capture and buyers in general just throwing a lot of money into tech based removals. We're seeing similar buyers throw a lot of money into nature based removals, so you see them being valued because
of their additional benefits beyond decarbonization. And that goes back to the end that Kyle was talking about, is that, yes, we can benefit from tech based removals because you can count those emissions and you can actively see and feel where that carbon production is going. But you can't also discredit the need for nature based solutions. So deforestation is still a risk, and avoided deforestation projects address that risk, but they also come with benefits for preserving biodiversity and
creating sustainable jobs for indigenous communities. So it all comes down to us doing our due diligence, but also mobilizing investment into high integrity and high quality projects on both ends.
So now, twenty twenty three saw a number of carbon offset retirements. Can you explain first of all, what a retirement is in this space and then secondly, really what the magnitude of it was when we look back at this year that's just gone by.
A retirement is when an offset buyer purchases that offset, but also cancels it. So for an offset to be retired, it means that it's no longer circulating in the market. I can't pick that offset again and use it. If I was let's say Shell, and I bought one million tons of CO two in offset. Now they count towards my own emission reduction goals. Some companies can buy those offsets and choose not to retire them. They could maybe retire it later, maybe trade it at a higher price,
and so on. So that is what a retirement is, is that you buy it, you cancel it, and then it counts towards your own emission reduction. In twenty twenty three, it was actually a turbulent year, so when we started off demand levels were suppressed when you compare to twenty twenty two, but then it's picked up massively towards the end, and we saw around thirty seven million offsets retired in December versus the fifteen that we saw month on month
earlier in the year. And there at Broughte it up to around one hundred and sixty four million officets retired, and it's a six percent increase from the previous year, and it's a record year again.
So let's talk a little bit more then about where the demand for this is actually coming from. And I want to start with you've already mentioned actually a couple of different companies. Are there specific industries you'd mentioned airlines, you mentioned oil on gas. Is it the hard to abate space that's really looking at this because they don't have a clear path decarbonization or are there simply trends that can't be explained? Really? Where is the demand coming from?
The short answer data is that every single sector is going to need carbon credits in order to get to net zero. Companies can be as aggressive as they want in reducing their own gross emissions, but if they're serious about making a net zero claim, there's always going to be residual emissions somewhere along their value chain that they'll need to neutralize. Right, that's the itch that they can't scratch.
If you look specifically at retirement activity today, while you are seeing it across pretty much every sector, there is a much more emphasis from oil and gas companies, from airlines, and from technology companies as well. But the types of credits that these different sectors are buying very significantly, and
we've kind of gotten at this a little bit already. Today, those companies with perhaps lower profit margins but much higher emissions, those airlines, for example, they can really only afford to purchase cheaper carbon credits. In most cases they're going to pass that cost on to customers, and so as a result, they need to buy carbon credits that are five dollars a ton, four dollars a ton, or even cheaper, and
that's why companies have gotten scrutiny in the past. You see very similar trends from the oil and gas sector, although the quality of the credits are purchasing are slightly higher. So Shell was the largest buyer of carbon credits in twenty twenty three, it's off to a very hot start in twenty four as well, and it's buying a whole range of carbon credits from energy generation projects to nature based solutions across Latin America, Sub Saharan Africa and Southeast Asia.
And then on the other end of the spectrum you have the technology companies, the ones with those higher profit margins that will require less carbon credits in order to get to net zero, and these companies are really making those big icebreaker investments into technology based removal and I
would specifically highlight Microsoft as a leader here. Microsoft has signed a whole slew of deals ranging from direct air capture to enhanced weathering to biochar in order to diversify its portfolio to neutralize those emissions.
The different types of offsets that you just mentioned are actually things that have been coming up more recently, and I'm even thinking about you know, each year we do our Pioneers program where we look at a couple of companies that will actually several companies that are attacking a certain part of the energy transition and decarbonization that needs to be addressed. And within one of the previous years, one of the winners was a biochart company, so we
got very familiar with that here at BNF. And I think I saw my first biotar in person at kop in Dubai last year because they had set up an area where you could actually see some of the agriculture solutions that actually were there. So they actually look a little bit like rabbit pellets. I want to say, they're quite tiny. I thought they would be bigger discs, but
you know, there we are. Okay, So we've talked about the demand side of things, let's talk a little bit about supply, because you know you've come on the show and passed and talked about renoal Ble energy credits. What is popular at the moment, What has been popular in this last year.
Well, the two main sectors that have always been popular and we see demand rising in them a lot is energy generation and avoided deforestation. There are mainly two reasons for that release. So energy generation projects are abundant and they're cheap, so they're low hanging fruit for buyers that want to offset before regulation and standardization kicks on. Avoided
deforestation also is one of the more popular ones. They also come with what we mentioned before, the additional benefits beyond decarbonization, and depending on where that project is, it also could be very cheap. But usually for companies that are opting for a more of like a higher quality ones, they would go for avoided deforestation because it signature based solution and there's a more of a story to tell
behind those offsets. So those two have been mainly the ones that are supplying the market and demand is mainly coming from there. But there are other sectors that are emerging and they're growing, and we saw that a lot between twenty twenty two and twenty twenty three, sectors such as energy demand and it's mostly of projects to install clean cook stoves in Africa, for example, and emissions projects and those are ones that reduce industrial emissions and they
were very prominent in the US right now. It's a whole range of sectors, but it's also interesting to look at the geographic differences, so which sectors are more popular in which regions. But overall, up until now, we see most of the supply coming from Asia, Latin America and Africa, and most of the demand coming from the US and
so North America and Europe. And that dichotomy between supply and demand did spur something in the market over the past year and made governments aware of the economic but also geopolitical benefits of sitting on potential to have a
huge carbon offset market. So we saw more policy updates going on there, especially around Zimbabwe when they wanted to reap some of the benefits of carbon offsets and capitalize on their own forestry projects, and we saw other African countries do the same, depending on the sectors that they sit on.
Yeah, and I would just say one kind of unifying factor amount all the sectors that Laylor just mentioned is that the creation of credits from those sectors is almost instantaneous.
Right a sector like reforestation, for example, you can make an investment in a reforestation project today, but you might not see those credits materialize for several decades because you need time for that forest to mature after you've planted those But sectors like avoided deforestation, like energy generation, those projects either exist today, which does bring up questions around additionality.
But in the case of avoided deforestation, it's about using that investment to protect an at risk forest and as a result, those trees can continue to sequest your carbon, and so it's an instantaneous delivery of credits that's been really popular with companies and that's why supply in these
sectors is much higher. And at the same time, that is why some of these governments are implementing these what we would call carbon nationalism policies to take advantage of investment into these instantaneous sectors.
So thank you for getting me up to date on really what's transpired since we last spoke on this show. So now let's look into the future. We recently published a long term carbon offsets outlook, and we actually broke it down into different possible scenarios for us to really think about where this market could go. Let's go into those scenarios. So let's start with I mean, I don't know, do we start with the good news or the bad news. Let's start with the good news, which is the high
quality scenario. What does that really tell tell us about what could happen in the voluntary carbon space and what would need to happen in order for this scenario to be true?
I can jump in here. What we've done is we've highlighted three what we would call benchmark scenarios, and we think these are the three most likely scenarios that can occur in the market. And we've gone ahead and then we've ranked these benchmark scenarios in terms of likelihood. And as Layla's kind of gotten over the call, today, we
are at a crossroads in the market. There's a lot of integrity initiatives, there's a lot of registries that are trying to standardize efforts to define what a good high quality offset looks like and the likelihood of that occurring. You know, I think it's really a coin flip right now. If those integrity initiatives were to fail, you kind of have a doomsday scenario for what this market can look like.
We can definitely talk about that later on, but if they're successful, what we think it could create is a high quality carbon offset market where every single credit it doesn't matter whether it avoids or removes emissions, it doesn't matter whether it's nature based or technology based. So long as it's over a certain threshold in terms of meeting that additionality, that permanence, and that measurability, it's going to
be considered high quality. And what we said is that in our long term outlook, if you create this high quality market, demand for carbon credits would be much more what we call inelastic, So companies would be willing to buy carbon credits regardless of their price, and they would form a very legitimate, reliable backstop in order for companies
to get to net zero. And so in this high quality market, we estimate that carbonof set demand would reach five point nine billion metric tons of carbon dioxide equivalent on an annual basis in twenty fifty, so significant growth from what we see today, and what that would ultimately lead to is much higher prices in the long run, So carbonof set prices in this high quality market would peak at over two hundred and forty dollars a ton
in the twenty forties, which is a huge investment signal. Right, there's a tremendous amount of opportunity for project developers, for investors, for policy makers, and then as a buyer, you need to be aware of these price rises as well. That gets you thinking should I hedge against this price rise today and lock into long term contracts in the near future at potentially cheaper prices. And so we think that this is a very realistic outcome for where this market could go.
I mean, this is essentially the scenario where we move beyond greenwashing and we get to a place where we can verify all of the credits and it's really more about the market than about what's.
Actually in it, exactly. That's exactly how I would define it. Really. We think the biggest factor and where we put the most emphasis in this year's long term out look is around carbonovs at demand, right, and we say, as demand goes, that's where the market's going to go. If demand falters, the market will folter. If demand surges, the market will search but really whether or not that demand rises or falls is going to depend on whether or not they
can buy high quality credits. And at a certain point, when you have demand exceeding billions of tons of carbon dioxide on an annual basis, companies are not going to have the time to suss out specific projects and figure out well, that's good quality and that's bad quality, or that one has certain co benefits and that one doesn't. What they need is a bar, and if a project is above that bar, it's good to buy no strings attached.
And that's really where we think a high quality market can get to if these integrity initiatives are successful.
So let's go to another extreme. Let's talk about the removal only scenario. What does that mean.
A removal's only scenario is a voluntary market where we only see offsets that come from projects that rely on removing carbon dioxide from the air. Now, this can be in the form of technology based removals. It can also be in the form of nature based removals. They both play a role and they come in at different times
depending on my supply and demand dynamics. Really, but in a removals only scenario, what we see is that prices will rise to unsustainable levels, exceeding two hundred and four dollars per ton in twenty forty, and they reach around one hundred and seventy two dollars per ton in twenty fifty. So such high prices could risk companies not meeting their net zero targets. But also the limited supply raises the question of can we sustain ourselves with only removal based offsets.
And what do you mean by sustain ourselves?
Supply would be quite limited. So right now, most of the carbon offset market comes from avoidance credits, so the forestry ones and the energy generation they make up more than seventy eighty percent of the market. In a removal's only scenario, we're cutting all of that down and they're just going to be shut down, all of these projects, and we will only have the removal ones, so reforestation, agriculture, and a tech based one like direct air capture and
bio energy with carbon capture and storage. And that is a quite limited amount relative to how much we actually need. But in that scenario, what we think companies will do is that they will pit those offsets against other decarbonization strategies.
So now we've got the quality issue out the window, and they will be comparable to other decarbonization alternatives, and the way companies will opt for them is on a least cost basis, So that's the least cost decarbonization demand outlook, and they'll be competing with clean energy, for example, or electrifying transport at different times of the scenario.
And to elaborate that on that a little bit more, there's this big question that always gets asked in the voluntary carbon market, and is the question is is a ton actually a ton? Right? If I buy a carbon credit from an avoided deforestation project, does that have the same impact, for example, as a corporation signing a power purchase agreement or electrifying its vehicle fleet or doing something else.
And the answer in most cases is no, it's not because of some of these quality questions that emerge in the voluntary carbon market. What we did and the exercise that we did in this removal only markets, we said, a removal only market is the closest that we'll ever get to a ton of carbon removed being equivalent to a ton of carbon reduced by some other form of decarbonization.
And so what we did and Leila mentioned this before, is we created marginal abatement cost curves for companies, and we said, as a corporation, if you're trying to achieve in that zero goal, you no longer need to take the approach of reducing your emissions as much as you can and then neutralizing any residual emissions with offsets. Could we ever get to a world where you look at your suite of options available and you prioritize those options
purely based on cost. So, as a company, if I set in at zero target for twenty fifty, and I set it yesterday, for example, and then I look at what's available, and the cheapest option is an offset, all invest in offsets rather than buying clean energy, for example. And this was a really interesting dynamic, and this changed
the outlook for carbon offset prices significantly. Leyla mentioned those highs that you see in a carbon removal market, right, But what's unique about this removal scenario is those price rises come much earlier than that high quality scenario that we talked about. Before they come in the next couple of years, they come by twenty thirty because there's so much early demand for carbon credits. Because they tend to
undercut other forms of decarbonization in terms of cost. So I think that's really the key dynamic to keep in mind here is that it would really change the way that companies buy carbon credits if we prioritized strictly removals in this market. And I think that's a very important dynamic for companies to consider as they follow guidance from initiatives like SPTI.
If we prioritize strictly removals and we're actually moving towards a proper net zero by twenty fifty, would they're in this scenario, be enough supply of this type of carbon credit in order for it to actually work.
In early years? Definitely not right. So in early years, as Leila mentioned, there was a massive reliance seventy to eighty percent on carbon avoidance credits, and part of that, again is their instantaneous nature. The readily available credits that can be created the moment investment comes in. Technology based removal is not readily available at scale yet. So I mentioned those high costs for direct air capture, but supply
is also really low as well. You have the first major pilot projects that are getting closer to commercialization, but they're not even fully proven yet, and so what you would run into in a removal only market is a huge shortfall in supply in early years and supply would have eventually catch up to demand in later years. But that leaves a lot of question marks around the near term. And so it does beg the question of do we
transition from one of these markets to another? Do we start with a high quality market where you can buy all types of credits, because again, we're going to need every single available tool for companies to decarbonize, But then slowly but surely, as costs come down and supply scales up, do we transition more to technology based or nature based removals?
And I think that's what a lot of stakeholders in this market are starting to lean towards in terms of how they think this market should evolve.
And then that brings us to the middle of the road scenario, which is essentially that the norm that we currently are experiencing right now. But if we continue on the path that we're on now, where does that lead prices? And really what does that do to the future of this market?
So I would refer to this scenario as less of the middle of the road scenario. And more of the doomsday scenario. If we continue on the path that we're on today, if we continue to follow all the trends that Leila and myself have mentioned that we saw in twenty twenty three, this market is heading for failure and most companies will clean miss their net zero targets. Right now, the carbon offset market is heavily oversupplied, and that's supply.
There's a lot of questionable quality that populates that supply mix. If that were to continue moving forward, we think demand would be very different from those other scenarios and it would be more elastic. And when we talk about elastic demand, what that means is that as the scrutiny for purchasing carbon credits increases and as the price increases, demand will simply drop, especially for those sectors that we were talking about earlier with lower profit margins and high emissions, So
those airlines, for example, those oil and gas companies. If they need to purchase tens or even hundreds of millions of carbon credits but they're going to get sued for greenwashing, the simple answer is they'll stop buying and they'll abandon their net zero goals. And that's a very realistic outcome for where this market can head if these integrity initiatives don't sort out some of these standardization issues.
And it's also important to mention that those prices of offsets in that scenario will remain very, very low. So in the other scenarios we spoke about them exceeding one hundred dollars perton, but in a voluntary scenario, the market value would pick at only thirty four billion dollars. So prices would reach thirteen dollars perton twenty thirty, and then fifteen dollars per ton twenty thirty eight, and only fourteen
dollars priton in twenty fifty. And that's nothing if you compare it to let's say the EU carbon price, it has reached around one hundred dollars per toon over the past year, and even against the other scenarios. So such low prices also do not give investors any reason to, let's say, invest in the tech based removals that we need to standardize or maybe raising integrity in this market.
Now, I know each type of carbon credit has its own price in the voluntary market because of well the costs it actually go into creating that offset but do you think that there will be a long term gravitational pull towards kind of one consistent price and that everyone will try and work towards that, and if you aren't cost competitive in that way, perhaps you'll get pushed out of the market.
There will never be a single price for carbonof set. We don't see that in any other commodity market of course, right, so we'll never get there with carbon. But what you will start to see is some homogenization in terms of the products that are trading in this market and that the prices that they fetch. And so, as you mentioned data every single carbonof set project, I think there's maybe nine thousand different major registered projects in the market today.
Every single project offers a different price. What we would like to see is that price start to standardize into maybe single digit amount of products out there. And so I think that is the necessary direction of travel, and there's a lot of exciting work on the horizon to go ahead and standardize these prices. I'm going I'll let Layla chime in on this, but we've written extensively about the exchanges and the derivative products that now exist in
the carbonof set market. To get to this homogenization.
We do see that. So over the past couple of years, you see that the voluntary carbon market is becoming more and more of a commodity, and that you see it very clearly when you look at that activity on exchanges. So we saw exchanges coming up and saying, well, we want to create something called standardized contracts. So you, as a buyer, you would just opt for this bucket of offsets that meets a certain criteria, but you don't really have visibility on where those officets come from. You just
know that they're nature based. You just know that they have core benefits, and you can trade them against other standardized contracts. So this sort of bucketing of offsets and trying to ask said the homogenize them within certain buckets makes the market resemble more and more of a commodity.
And the volumes of those standardized contracts or the traded volumes of those standardized contracts also increasing significantly, and that mainly is because one you see traders seeing investment opportunity in them. But also now buyers will need to have access to humongous amounts of offsets instantaneously. They will no longer have the time to look after each offset and where it came from, but they'd rather rely on such readily available products.
So here we are a quarter into twenty twenty four, and while I know that we haven't done our outlook on the year yet, I want to know if you think that we are in the same situation as twenty twenty three, or if there have been any signs that the market is starting to correct itself.
It is correcting itself. In my view, I'm usually more optimistic and sometimes I'm let down by the end of the year. One cop turns around. But looking at January and February so far, we saw one and uptaken the demand levels, and we saw project developers being more aware of what's to come. So previously we would just see a pump of offsets populating the market, regardless of whether
they're good or bad. But now with standardization coming around the corner, project developers are now taking a step back and they're waiting for those standards. And this basically indicates a heightened level of awareness in the market where we are waiting for standards and want to apply them. So uptake and demand supplies becoming more re in the bill, and we're seeing some standardization, but also interestingly, policy and
other sectors also playing a role. So we have something called CORSA, which is the scheme that is intended to decarbonize the aviation sector. Part of it is using offsets for that decarbonization, and they come with another slew of regulation and standards and strict standards around offsets, and people are looking towards them, and they're also being traded at higher prices. So the short answer is, I'm more optimistic around twenty twenty four relative to twenty twenty three.
With the caveat that you are just generally a more optimistic person.
With the caveat of I'm generally a more optimistic person, but we do have the numbers and data to pack it up this time.
I would also just add we talked about a lot of the criticism that we saw in twenty twenty three, and I think it is worth mentioning, wen't We haven't explicitly said this yet. All of that criticism was valid. All of the projects that were scrutinized for creating low quality credits, all of that scrutiny and all of those accusations were true. Right, those projects should have never been
creating carbon credits in the first place. And to me, thinking about this from an optimistic standpoint, what that's leading to is a much more mature market.
Right.
We're trimming some of the fat, if you will, from kind of the outskirts of this market, and you're leading to more sustainable growth moving forward. And as Leila mentioned, I think a lot of that scrutiny and a lot of the fixing that was done in twenty twenty three it's starting to materialize in more activity and more investor optimism in twenty twenty four.
And on that investor optimism, now we're seeing more funds. So like as Kyle mentioned before, you have people like Microsoft targeting other projects and funding removals and high integrity projects, and activity in that area has also increased a lot.
And it just shows you that now companies with big wallets or companies that can afford it will go the extra mile and offset in high integrity projects and that will drive investment and scale the technologies that we need for a more mature, more balanced market as well moving forward.
So Kyle, Laila, thank you very much for getting us up to speed on what's happening in this space and is the wild US actually turns into a much more verified and solid market and something that more similarly resembles commodities.
Thanks so much, Dana really appreciate it.
Fun chat, Thank you, Dana.
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