Carbon Outlook

Newsletter Issue 14/7/23

Demand for carbon removal has never been greater. So where does the carbon market fall into all this? To get the answer, Sādu interviewed over 80 different people from sustainability managers to carbon market brokers.

Climate related financial risk is proven. Regulatory requirements in the EU like the CSRD will require 50,000 companies to report on emissions. Meanwhile, in the US, the SEC is proposing a mandatory climate risk disclosure.

Requirements on emissions reporting will push companies to develop net zero targets and therefore invest in carbon removal. Companies buy carbon credits as a form of investment in carbon removal.

Some carbon credits are created using natural methods, like reforestation. The goal of these projects is to reasonably prove they remove carbon from the atmosphere and store it for a specific amount of time. Once this is proven the resulting credits are considered “high quality.”

The science behind measuring carbon stored, alongside other environmental factors, can get highly specialized. The more specific the measurement is the more expensive it becomes to create the credit. Plus, it is increasingly clear that high quality credits nature-based credits will come from small areas of land that can be privately managed.

Organizations designed to collect scientific data generated and turn it into a carbon credit include consultancies, NGOs, and for-profit startups. They are responsible for balancing the high cost of monitoring, reporting and verification (MRV) with the price companies are willing to pay for credits.

The general conclusion is that the high cost of MRV eventually won’t matter due to a combination of two factors. First, technology will evolve to make it cheaper to aggregate and analyze MRV data. Second, demand for credits will exceeded supply, driving the cost of credits high enough to make the process of creating them profitable.

Organizations like the International Monetary Fund, Bloomberg New Energy Finance, and the International Energy Agency have forecasted scenarios with prices rising to around $100.00 tonne for quality credits by 2030. This is significantly higher than today’s price at around $40.00.

So when will the inflection point happen? When will demand for carbon credits outpace supply? There are a handful of important things to look at in order to get a clear answer. Sādu will share an outlook on all of it over the course of this newsletter.
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Sadu is a platform for Project developers and asset managers can now join the rapidly growing carbon market without the risk of buying or selling carbon credits in advance. The platform makes this possible by connecting key data points on developers across their value chain, reducing friction and unlocking new projects at smaller scales.