2021 marked the fifth consecutive year of significant growth for the global carbon market, with its total value soaring by more than 2.5 times compared to the previous year. As governments and businesses worldwide intensify efforts to achieve ambitious Net Zero goals, this impressive growth trajectory for the carbon market is projected to continue robustly across both compliance and voluntary sectors.
- What may you not know about the carbon credit market?
- The journey to The Net Zero goal requires a breakthrough
- COP26: Joint voice to protect the future of the Earth
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The global carbon market surges to $851 billion by 2021
According to Refinitiv, a leading financial data analysis company based in the UK, the total value of the global carbon market reached an impressive 760 billion Euros ($851 billion USD) in 2021. This represents a staggering 164% increase from 288 billion Euros in 2020, highlighting the exponential growth of the emissions trading market. A significant portion of this expansion is attributed to the European Union Emissions Trading System (EU-ETS), which stands as the world’s pioneering, largest, and most successful emissions trading market. The EU-ETS alone contributed 683 billion euros, accounting for an overwhelming 90% of the entire global market value.
The year 2021 marked the fifth consecutive year of sustained growth for the emissions trading market. Notably, the Voluntary Carbon Market (VCM), while smaller in scale than the Compliance Carbon Market (CCM), garnered substantial attention. This emerging market segment saw unprecedented record transactions and skyrocketing carbon credit prices, collectively pushing its total market value to surpass $1 billion USD by the close of 2021.
The global carbon market for the period 2018-2021 (Source: Refinitiv)
This record growth in the carbon market over the past year was a direct result of a dual increase: both the volume of transactions and the escalating price of carbon credits. Driven by high investor demand and the European Union’s stringent climate policy aiming for a 55% emissions reduction by 2030, the price of emission credits within the EU-ETS exceeded 80 euros per ton by the end of 2021, effectively more than doubling its value from the close of 2020.
The accelerating trend in the Net Zero implementation roadmap
The global carbon market is poised to maintain its strong growth momentum, significantly propelled by the outcomes of the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26). This pivotal conference saw nations commit to reducing greenhouse gas emissions, achieving carbon neutrality, and crucially, finalizing the Code of Conduct guiding the implementation of the Paris Agreement, particularly Article 6, which directly impacts the carbon market.
At COP26, a substantial 136 countries, including Vietnam, collectively pledged to achieve Net Zero emissions by mid-century. These commitments represent nearly 88% of total global greenhouse gas emissions and contribute over 90% of the world’s GDP. Concurrently, at least one-fifth of the world’s 2,000 largest corporations, with a combined revenue of approximately $14 trillion, have also committed to reaching Net Zero through various initiatives by mid-century or earlier. For deeper insights into Vietnam’s carbon credit market, please see: Vietnamese carbon credit market insights.
Pham Minh Chinh, Prime Minister of Vietnam, talks during COP26 (VNA photo)
Furthermore, with climate change recognized as an urgent global issue and the climate crisis identified as the world’s greatest long-term risk (with extreme weather and climate inaction posing significant short- to medium-term risks), many investors are actively adjusting their portfolios. This involves increasing investments in emissions reduction strategies. Recent survey data from the Asia Investor Group on Climate Change (AIGCC)’s “Net Zero Investment Report” indicates a significant shift: “while net-zero commitments have become the expectation, interim targets are emerging as a key component to net-zero commitments in demonstrating genuine Paris-aligned commitments. 40% of respondents have made portfolio-wide commitments, where there were none in the previous year.” The report also highlights that 65% of surveyed investors are already measuring or beginning to measure emissions specific to their investment portfolios to calculate carbon reductions and actual climate impacts (compared to 44% in 2020). This evolving landscape will undoubtedly influence business development plans as companies strive to meet new climate change investment requirements.
The carbon market is broadly anticipated to experience even stronger growth as both governments and businesses increasingly focus on emissions reduction and the achievement of Net Zero targets. Many businesses are leveraging the voluntary carbon market to offset unavoidable emissions, while simultaneously implementing direct emissions-cutting measures such as transitioning to renewable energy and alternative fuels. Projections indicate that the voluntary carbon market could be valued at $50 billion USD by 2030. Concurrently, a study by Coherent Market Insights forecasts that the global carbon credit market will reach an astounding $2,407.8 billion USD by 2027, demonstrating a Compound Annual Growth Rate (CAGR) of 30.7 percent between 2020 and 2027.
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In 2021, Vu Phong Energy Group, in collaboration with Construction Joint Stock Company 47 (HOSE: C47) and INTRACO Company, signed a Memorandum of Understanding (MOU) to establish projects focused on providing clean drinking water stations and reducing greenhouse gas emissions. This strategic partnership aims to create a joint venture for the production, construction, installation, and operation of water purification stations, thereby improving community health and contributing to the realization of Sustainable Development Goals (SDGs), particularly those related to water resources and security. Furthermore, these initiatives will generate revenue from carbon credits by developing projects under the Sustainable Development Mechanism (SDM). This pioneering cooperation marks Vu Phong Energy Group’s official entry into the rapidly expanding carbon credit market. |
Resources: Refinitiv, Ecosystem Marketplace, AIGCC, Mckinsey, Coherent Market Insights
