The London Stock Exchange (LSE) established listing rules for companies that finance carbon-reduction projects in a bid to ensure greater transparency in the market.
LSE’s push to boost the voluntary carbon market comes as the sector is expected to balloon over the next decade. The annual global size of the voluntary carbon market was around $2 billion in 2021, according to Ecosystem Marketplace. McKinsey is expecting the market size to expand to $50 billion by 2030.
At present, the voluntary carbon market is only minuscule when compared to the compliance carbon market, which was valued at $736 billion in 2021.
While the compliance carbon market is created as a result of regional, national, or international policy or regulatory requirements, the voluntary carbon market is created through the buying and selling of carbon credits on a voluntary basis.
Economics of Carbon-Reduction Projects
Once a carbon-reduction project generates carbon credits—calculated according to the amount of carbon dioxide the project removes from the atmosphere—the shareholders receive these credits as dividends.Alternatively, the project can sell the carbon credits, collect cash, and distribute the cash as dividends to shareholders. Other firms can buy carbon credits to offset the greenhouse gasses they emit.
This is especially true when considering the last two to three years as firms are being requested, encouraged, or obliged to achieve net zero emissions.
Kember pointed out that companies are mostly looking to invest in high-quality projects. “If you’re doing this voluntarily and you’re spending money that you could spend on other things, most companies have realized that it is pretty crazy to buy something that is substandard,” Kember said.