The cost of carbon offsetting could double for companies by 2030, new analysis has indicated.
A report, published by Price Waterhouse Coopers (PwC), found that FTSE 350 companies publicly reported voluntary carbon offset purchases totalling £38 million in 2022.
But analysis of BloombergNEF forecasts suggests that this same volume of offsets could cost companies more than £154 million – an increase of 256% – by the end of the decade.
Companies across all sectors must consider the potential financial impacts of rising offset prices as part of their net-zero planning— Ian Milborrow, sustainability partner at PwC UK
It also found that prices were expected to continue to rise until 2050, with the cost of the same volume of offsets peaking at £356 million as businesses raced to meet net-zero targets.
The findings have prompted warnings that companies may fail to reach their targets if they find them unaffordable in future, having failed to consider rising offset price rises in their strategies.
At least 80% of the volume of offsets reported to have been bought by FTSE 350 firms in 2022 were classed as “avoidance offsets”, which come from projects that avoid environmental impact, like renewable energy or deforestation.
But there is growing momentum that avoidance offsets are not fit for purpose and only removal offsets – those generated from projects that extract or permanently store CO2 from the atmosphere – should be allowed.
If we get to that stage where the use of offsetting to reach net-zero targets becomes sufficiently expensive so as to become unviable ... companies will be unable to meet their net-zero commitments in the timeframes they have published— Ian Milborrow, sustainability partner at PwC UK
So the researchers also looked at what would happen to prices if avoidance offsets were to be discounted.
They found that price rises were even sharper, with the same volume of voluntary offsets purchased in 2022 for £38 million costing £483 million by 2030 – a 1,051% increase.
Prices under this scenario were also forecast to continue rising to a peak of £2.6 billion in 2037.
The energy sector alone could see an average of 8.5% of 2022 gross profits being spent on removal-only carbon offsetting by 2037 under this forecast, the researchers said.
“Companies across all sectors must consider the potential financial impacts of rising offset prices as part of their net-zero planning,” Ian Milborrow, sustainability partner at PwC UK, warned.
Clear, consistent disclosure of a carbon-offset purchasing strategy through annual and sustainability reporting – within the limits of commercial sensitivities – will provide critical transparency and reassurance for investors— Ian Milborrow, sustainability partner at PwC UK
“If we get to that stage where the use of offsetting to reach net-zero targets becomes sufficiently expensive so as to become unviable, and in the absence of other strategies, companies will be unable to meet their net-zero commitments in the timeframes they have published.
“There are a number of steps that companies can take to address these challenges, including making longer-term offset purchase agreements, developing internal carbon-pricing mechanisms and, wherever possible, focusing on decarbonisation to reduce their exposure to future offset price rises.
“In addition, clear, consistent disclosure of a carbon-offset purchasing strategy through annual and sustainability reporting – within the limits of commercial sensitivities – will provide critical transparency and reassurance for investors.”
An individual, organisation or company can buy carbon offsets as a way to fund decarbonisation projects and technology in place of taking actions to lower their own emissions.
