You can look at the price from two perspectives - one is the price of a carbon credit itself, and the other is the cost to the planet of each ton of carbon emitted. Let's focus here on the first aspect.

The prices of carbon offsets have changed significantly over the past year.

Each credit sold is equivalent to one ton of carbon dioxide and the price has increased significantly, not least for high-quality credits. The graph below shows the price trend for nature-based solutions, i.e. carbon offsets in projects that, for example, preserve, restore or plant forests. The price increase was over 200% in the last year. This is an average and shows the overall trend.

The increase is due to a number of interacting factors:

• Operators have started to speculate on higher prices and therefore bought stocks of credits
• Reduced supply of (cheap) legacy wind and solar energy credits
• Higher demand for (more expensive) high-quality carbon storage credits
• Weakening of the Swedish krona against the US dollar in which many projects are traded, over 20 percent in one year
• General rapid increase in world inflation

* Source The Taskforce on Scaling Voluntary Carbon Markets (TSVCM)

Some of the above factors are interlinked in that every year we are getting closer to the day when, according to the Paris Agreement, we should be net-zero to reach the 1.5C target. The closer we get to 2030, the more people realize that they need to offset. Today, science tells us that the temperature target cannot be reached by reducing emissions alone, but requires_CO2 capture and carbon sequestration. The longer we wait to start storing carbon through e.g. tree planting or capture through DACCS and ^BECCS1, the more_CO2 in the atmosphere will have to be removed.

In the past, there has been some oversupply of credit, but now the situation is different. This is pushing up prices and attracting investors to this sector in pure speculation. This is a new phenomenon that we have not seen before. Another factor in the reduced supply is that several countries have announced that they will ban the export of credits for climate compensation - they want to use these for their own country's climate goals.

In 2022, the war in Ukraine, the lack of energy, food shortages and other concerns have driven inflation and thus also price developments in general. This applies here in Sweden but also globally, and it also means increased costs in the projects where the credits are created.

'The social cost of carbon'
So what about the cost to the planet? People talk about 'the (social) cost of carbon' - how does it develop? Well first of all - what is it? The social cost of carbon is a price tag calculated for each new ton of carbon dioxide added to the atmosphere, incorporating a range of factors^.2 It is the cost imposed on society as a direct or indirect effect of climate change due to greenhouse gas emissions. This ranges from building dikes against rising sea levels to costs resulting from climate refugee flows. In other words, everything that needs to be done to save communities and to adapt them to rising temperatures and their effects. It can also be expressed as the benefit of not emitting another ton of_CO2, i.e. the money saved by society. Today, the price tag is set at just over USD 50, i.e. over SEK 500 / ton of_CO2.

There is every reason to return to the subject of the 'Cost of Carbon', but in this text we will confine ourselves to a brief description of the phenomenon.

Putting a price on your company's climate impact

At ZeroMission , we have long argued that if you include the cost of your own climate impact in the accounts, it directly creates an incentive to reduce your emissions. In our model, this means that companies calculate, reduce and offset their climate impact annually. Put simply, if you offset the same amount of_CO2 you emit, the cost of the invisible waste is visible in your accounts. To reduce the cost, emissions need to be reduced. The principle is the same as for any other part of a business - to streamline and reduce costs and increase revenue.

For some of our customers, this approach has actually generated more business, market share has been gained and the business has grown. The total carbon footprint of the company has in some cases increased, but per unit sold it has usually decreased. If competing companies that have not worked on their climate impact at the same time sold less, the climate and the planet win a little bit through the replacement effect. We at ZeroMission think this is a good thing, and our annual Novus^survey3 shows that consumers also reason in the same way. So does the view of the employer, where young people in particular believe that it is an important factor to work for a company that actively works to reduce its climate impact^.3

So what can we expect going forward?
In short, we can probably say that the price of carbon will never be this low again. The prices of good carbon offsets will continue to rise as demand increases. How much, of course, we can only guess today. Hopefully, the number of projects will also increase, which is good. However, carbon offset projects take time to start up and it will be several years before there are saleable, verified credits with real climate benefits. If we add the fact that several countries ban the export of credits, the supply will shrink further and the supply and demand curves will point in different directions in the short term.

What we know for sure is that the longer we wait to reduce our climate impact, the more expensive it will be, for all of us. For companies, for countries and for the planet. Putting a price on your climate impact by offsetting today while accelerating the pace of emission reductions is a good way to tackle the challenge!

Some explanations:

¹ DACCS = Direct air carbon capture and storage. BECCS = Bio energy carbon capture and storage.
² In this post, we will not delve further into this calculation, which is somewhat complex.

³ You can read more about our annual Novus survey here

* When we write_CO2, it can also include CO2 equivalents, i.e. other greenhouse gases converted to_CO2.