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The Next Decade: Future of Carbon Trading

May 23rd, 2024
Carbon emissions

The Future of Carbon Trading: An Introduction to Carbon Markets

Carbon markets have been created to manage the over-production of carbon emissions from businesses, either to government-mandated or voluntary emissions targets. In short, carbon markets trade units of offset carbon - one ‘buyer; of carbon, usually a business attempting to lower its carbon footprint. The ‘seller’ is a business or organisation that directly reduces carbon emissions through its general operations and sells its extra units of offset carbon for a profit. But where is the carbon market heading over the next decade and how could it benefit your business?

Carbon Market Trends: Understanding Market Drivers

The carbon market is gaining traction year on year, so now could be a beneficial time for you to enter it as we see the market unfold over the next 10 years. A key driver of the carbon market is reducing a business’s carbon footprint—but why is this so important?

A general rise in carbon offsetting    

With sustainability targets like the Paris Agreement looming, more businesses are entering the carbon market to reduce their carbon footprints without reducing their carbon emissions or to exploit the financial gain of operating within the market. This affects factors like the stability of the market and the pricing, which we’ll discuss later in this article.

Carbon conscious investing 

Many businesses are now managing what’s known as a carbon conscious portfolio. An element of this is studying both their own and their potential investors' carbon footprints. Sometimes, they choose one investment over another because they have more desirable suppliers from a sustainability standpoint. Techniques like positive and negative screening to rank suppliers based on how beneficial they are from a sustainability perspective can make or break whether a future client may want to do business with you. 

Brand positioning  

In the same vein as carbon-conscious investing, your brand position to the public can be just as important (and lucrative) as your commercial positioning. Consumers wanting to buy into your brand and products may be more likely to convert if sustainability successes are evident in your marketing, as more and more shoppers become considerate consumers. From a recruitment perspective, potential candidates may be more inclined to join you if you show good sustainability credentials – such as carbon offsetting – which all feed into your Employee Value Proposition (EVP). We’ll go into this in more detail in the section called Sustainable Investment in Carbon Markets.

The Future of Carbon Trading: Opportunities & Predictions

It’s important you make sure entering the carbon market is the right - and financially sound - choice for your business. Here we look at the predictions and opportunities for the carbon market to help you decide:

Pricing of the carbon market   

As more businesses want to reduce their carbon footprint through offsetting, the price of offset carbon initially increased dramatically. Some companies are using the upward curve of the value of offset carbon units to predict future profit opportunities in the next decade. These companies are buying offset carbon at its current value, with the forward view that it will increase in value over time, selling it at a profit and creating a viable business opportunity, though there’s no guarantee this will pay off. See more in the Trends, Tools & Resources for For Carbon Market Trading section.

A volatile market  

As explained above, pricing in the carbon market is increasing as more companies enter it. This activity unsettles the market, causing market volatility. Currently, this volatility has had a positive impact on pricing of offset carbon. Still, this type of market behaviour can lead to fluctuations, increasing but also decreasing the value of offset carbon over the next decade.

Sustainable Investment in Carbon Markets

Carbon markets offer an opportunity for most businesses looking to reduce their carbon emissions, and this can be led by making informed choices about carbon offsetting. Here we go into the key areas of investment for carbon offsetting:

Sustainability credibility  

Some of the most well-recognised ways to enter the carbon market is by investing in carbon offsetting partnerships, the most prominent of which tend to focus on environmental support. These schemes concern a ‘buyer’ of offset carbon, and a ‘seller’ of offset carbon trading units of offset carbon on the carbon market. This market could see carbon offset via wetland, rainforest or forestry projects. 

Supporting developing areas of the world    

In addition to supporting environmental causes, you can also enter the carbon market by choosing to offset carbon with community-led schemes. These schemes work in the same way as environmental carbon offset projects but tend to concern community sustainability improvements and the development of sustainability-led jobs in developing nations.

Trends, Tools & Resources for For Carbon Market Trading

Price forecasting 

Before investing in the carbon market, it’s crucial to study the trends and movements in the market about carbon pricing forecasting. While the market had previously seen buoyancy, in the EU, carbon prices in 2024 at €71 per ton are down from 2023 at €85 per tonne. This could be just a short-term dip, or if it’s a longer-term trend, by 2030, offset carbon units may trade only at approximately credits could trade at just €11 per tonne.

Carbon Market Pricing Tools 

Carbon pricing tools can help you identify patterns in the carbon market's fluctuations over the coming decade. Tools like the Montel Online platform allow you to follow the EU ETS and UKA carbon prices from carbon trading exchanges across Europe or have live prices fed into your systems and spreadsheets via API and Excel feeder solutions.

AI & Drone Advancement 

The measurement and accuracy of carbon offsetting has improved in recent years thanks to the burgeoning AI market. Drones more accurately scan reforestation projects to produce pinpoint data to be processed by AI, allowing you to take stock of your carbon offsetting investments and forecast how much they are currently worth, and, coupled with pricing forecasting tools, could be worth in the future.

See how we can help you understand carbon markets