With drastic emissions cuts required to reach “net zero” by 2050, the market for carbon offset credits is set to take off, says the CPP Investments Insight Institute in a new report.
Carbon credits are generated by developing projects that prevent greenhouse gas (GHG) emissions or enable emissions to be pulled from the atmosphere. Those credits are sold to polluters looking to offset their own emissions and achieve carbon neutrality.
“Over time, robust carbon markets will offer investors unique ways to earn attractive risk-adjusted returns while funding nature-based mitigants to climate change,” the firm said in a release on Monday.
Along with the report, the pension giant announced that it established a partnership with non-profit Conservation International to help develop projects that generate carbon credits.
At this point, the report noted the market for carbon offsets remains relatively immature, fragmented and illiquid. But that is set to change as the demand for offsets rises amid companies seek to meet their climate commitments.
Additionally, last year’s major climate summit, COP26, reached agreements that set the stage for carbon markets to “establish cross border standards, larger scale, and greater liquidity,” it noted.
As demand takes off and liquidity builds, it’s expected that prices for offset credits will surge, too: “prices for voluntary credits could rise by 50-fold by mid-century,” it said.
This sort of move would represent both an opportunity for investors and a benefit to the environment, the report suggested.
“The partnership between CPP investments and Conservation International is a prototype for investors seeking opportunities presented by the whole economy transition to net zero,” said Deborah Orida, global head of real assets and chief sustainability officer at CPPIB, in a release.