Considerations for accessing high-quality carbon offsets as part of the Net Zero transition

Why pricing and purchasing challenges risk undermining carbon offset procurement strategies in the FTSE 350

As businesses become more focused on their transition to Net Zero, many have turned to voluntary carbon offsets as part of their decarbonisation strategy. With pressure to make progress towards Net Zero intensifying, and businesses realising the commercial value in decarbonisation, demand for carbon offsetting is likely to accelerate. When coupled with a more restricted supply, this could lead to significant price rises.

PwC estimates that in 2022, FTSE 350 companies publicly reported purchases of voluntary carbon offsets totalling £38 million. Based on current pricing models, by 2030, this same volume of offsets would cost companies more than £135 million, a 256% increase. These price rises are expected to continue until 2050, when the cost of the same volume of offsets is expected to peak at £365 million.

In this scenario, where only removal offsets are purchased, the same volume of voluntary offsets FTSE 350 companies purchased in 2022 for £38 million would cost £438 million by 2030. Prices for these types of offsets aren’t expected to peak until 2037, where the cost of the current level of FTSE 350 purchases would equate to £2.6 billion.

In addition, companies do not routinely disclose what they pay for carbon offsets due to commercial sensitivity, and this lack of transparency makes it difficult for investors and other stakeholders to gauge how these risks might affect individual companies' Net Zero transition plans. In 2022, 118 companies in the FTSE 350 (34%) included a reference to carbon offsets in their corporate reporting, but only 19 made reference to the cost of offsets, and just seven referenced potential future price increases.

Regulatory pressure and an increased focus on market governance may reduce the carbon offset options available, as investors and customers demand more robust claims to see businesses move away from potential overestimation and non-additionality. Increasing demand and a tighter supply, mean carbon offsetting strategies could become more expensive, more limited in choice and more widely scrutinised. But what can businesses do to respond to this challenge, without compromising their overall Net Zero ambitions?

In this report, we explore the factors expected to drive carbon offset prices, assessing the overall financial impact of this on FTSE 350 companies currently purchasing voluntary carbon offsets. By expressing current purchasing volumes in market forecasts of future prices, we draw out the severity of the rising offset prices and the impact this could have. Our conclusion provides recommendations for how businesses currently purchasing voluntary carbon offsets can adjust their decarbonisation strategy to protect themselves, retain investor confidence and maintain their progress to Net Zero.
 

Contact us

Lynne Baber

Lynne Baber

Sustainability Practice Leader, PwC United Kingdom

Tel: +44 (0)7809 756065

Ian Milborrow

Ian Milborrow

Partner, Climate Finance and Net Zero, PwC United Kingdom

Tel: +44 (0)7738 845072

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