The voluntary carbon market

The year 2022 revealed some critical shifts within the market. While the volume of traded credits more than halved compared to the peak in 2021, the market's total value remained relatively stable. This resilience in market value signaled a clear transition: buyers were moving away from low-quality carbon credits and increasingly opting for high-quality credits, which command a higher price. This shift reflects a growing recognition of the importance of quality assurance in voluntary carbon markets, driven by corporate demand for more credible and impactful carbon crediting projects.

In 2022, technical CDR credits, though still a small portion of the market, became more visible in data, accounting for approximately 2% of total market share by volume. While this may seem modest, the market value contribution of these technical credits tells a different story. Due to their higher price compared to other carbon credits, it is estimated that technical removal credits represent a much larger share of the total market value – likely 33% or more.

This disparity between volume and value highlights the increasing importance of high-quality, technical CDR solutions, such as BECCS and DACCS, in the voluntary carbon market. Even amid the overall market decline in 2023, the demand for technical removal credits continues to grow, driven by corporate net-zero commitments and the desire for durable, long-term solutions.

Market outlook and pricing forecasts for technical CDR

As demand for technical CDR credits grows, these credits are expected to command higher prices. Current estimates range from around 150 EUR per credit for BECCS to 450 EUR per credit for DACCS, depending on project type and quality. Future scenarios aligned with global climate goals suggest a significant increase in demand for carbon removal, potentially reaching 900 MtCO2 by 2030, 1,700 MtCO2 by 2040, and 3,500 MtCO2 by 2050. This projected growth underscores the rising importance of technical carbon removal solutions.

Implications for CCUS projects

The evolving dynamics of the VCM present both opportunities and strategic challenges for CCS projects under development.

The high market value of credits derived from the storage of biogenic (BECCS) and atmospheric CO2 (DAC) presents significant market potential for CCS projects. Companies like Microsoft have already signaled their preference for CDR credits from biomass power generators, setting a precedent for other potential buyers. However, some buyers also show a growing interest in diversifying the sources of biogenic emissions eligible for credits, including those from waste management and sectors like cement, lime, pulp, and paper.

Despite this, the market for CDRs is yet far from a commodity market. Deals are demand driven and made on a project basis in a partnership between buyer and project developer.

• First, understanding the buyer landscape and their purchasing criteria is essential; are companies willing to pay a premium for high-quality biomass-based removals, and what trade-offs exist between the quality of the biomass and its associated costs?
• Second, what is a realistic price expectation for the CDRs from my project and at which price level might the sale of physical biogenic CO2 be a more attractive option?
• Lastly, companies must consider how many CDR credits they need to sell upfront to de-risk their project and secure financing, and to what degree they can rely on expectations for future price increases.

Early engagement with potential buyers is crucial, as multiple offtake discussions can increase the chances of securing a deal in a selective buyer’s market. Companies developing CCS projects with high-quality biomass sources and early buyer engagement will be well-positioned to capture value as the market matures and technical CDR projects expand.

Sellers should expect the process from feasibility assessment to a firm CDR offtake agreement to take over 12 months. During discussions with potential buyers, it is beneficial to demonstrate a strong understanding of buyer requirements and the standards and methodologies for certifying CDR, including their merits and shortcomings.