Market Opportunity
Last updated
Last updated
The market opportunity has the potential to be significant. Even if 85% of the global emissions of 51 billion tons are reduced through decarbonization strategies, more than 7 billion tons will need to be offset. Assuming a cost of $100 per ton to sequester emissions suggests a $765 billion market. This is larger than the software sector today. While we expect a market will eventually be created to meet this demand and hence capture the opportunity, further development through existing the existing voluntary carbon market is anticipated to be slow.
More and more companies are pledging to help stop climate change by reducing their own greenhouse-gas emissions as much as they can. Yet many businesses find they cannot fully eliminate their emissions, or even lessen them as quickly as they may like. The challenge is especially tough for organizations that aim to achieve net-zero emissions, which means removing as much greenhouse gas from the air as they put into it. For many, it will be necessary to use carbon credits to offset emissions they cannot get rid of it by other means.
The Taskforce on Scaling Voluntary Carbon Markets (TSVCM), sponsored by the Institute of International Finance (IIF) with knowledge support from McKinsey, estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. Overall, the market for carbon credits could be worth upward of $50 billion in 2030.
Voluntary carbon credits direct private financing to climate-action projects that would not otherwise get off the ground. These projects can have additional benefits such as biodiversity protection, pollution prevention, public-health improvements, and job creation. Carbon credits also support investment into the innovation required to lower the cost of emerging climate technologies. And scaled-up voluntary carbon markets would facilitate the mobilization of capital to the Global South, where there is the most potential for economical nature-based emissions-reduction projects.
McKinsey estimates that annual global demand for carbon credits could reach up to 1.5 to 2.0 gigatons of carbon dioxide (GtCO2) by 2030 and up to 7 to 13 GtCO2 by 2050 (Exhibit 2). Depending on different price scenarios and their underlying drivers, the market size in 2030 could be between $5 billion and $30 billion at the low end and more than $50 billion at the high end.
To meets this explosive demand for carbon credits, the development of new projects would have to ramp up at an unprecedented rate. All projects come with risks, and many types could struggle to attract financing because of the long lag times between the initial investment and the eventual sale of credits. McKinsey estimates that once these challenges are accounted for, the estimated supply of carbon credits drops to 1 to 5 GtCO2 per year by 2030.
