The projected supply-demand

gap to 2050 in the Voluntary

Carbon Market

February 2022

© Trove Research Ltd. - Confidential

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Table of contents

1. Introduction and methodology

2. Key insights
3. Projected supply
4. Demand forecast
5. Supply-demand gap
• All project types – to 2050
• Reduction credits – to 2050
• Reduction credits – focus on 2030
• Removal credits – to 2050
• Removal credits – focus on 2030

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 1. Introduction and methodology
1. Introduction

This report provides Trove’s view on the balance of supply and demand of voluntary carbon credits to 2050.

Supply projections are built using a fundamental model as described in the recent publication ‘Projecting carbon credit issuances from registered and
pipeline projects’. The projections shown are based on existing projects - those that are either already registered or are in today’s registry pipelines1. The
analysis does not forecast the rate at which new projects are created, only the potential supply that could be provided by currently-known projects.

Demand forecasts are from Trove Research’s corporate climate commitments database, which gathers data from a wide variety of sources to track voluntary
corporate climate commitments and their potential demand for carbon credits. As explained in our most recent ‘Corporate Climate Commitments Monthly’
report, high, medium and low demand carbon credit demand forecasts are built on four main pillars:

(i) Net zero (SBTi2) – demand from corporates that have made net zero targets under SBTi, who require credits to offset their residual emissions.

(ii) Net zero (Oil & Gas) – demand from major oil companies that have pledged to net zero, who will similarly require credits to offset residual emissions.

(iii) CORSIA3 – demand from airlines that have committed to offset all their emission growth above their 2019 levels as part of the CORSIA initiative.

(iv) Carbon Neutrality – demand for offsets from companies that target carbon neutrality across their value chain, operations and/or products.

1. The pipeline contains projects that are undergoing verification but are not yet allowed to issue credits. For both registered and pipeline projects in Verra and Gold Standard, and registered products in
ACR and CAR, project sizes are based on the estimated annual emissions provided in the PDD. For pipeline projects in ACR and CAR, projects size is assumed to be equal to the average historic size for their
assigned project type
2. Science-Based Targets initiative
3. Carbon Offsetting and Reduction Scheme for International Aviation

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 2. Key insights
2. Key insights

• Supply from registered and pipeline projects is expected to peak at 500-620MtCO2e/yr between 2024-2026. This is around 3x the demand for carbon
credits in 2021. However, demand for credits is expected to increase significantly over the next few decades, reaching 1,000-2,000Mt/yr by 2030, and
up to 7,000Mt/yr by 2050.

• As a consequence, the market could be in annual deficit as soon as 2024. On a cumulative basis, demand could exceed available supply, inclusive of
the current surplus, as soon as 2027 (or, in the unlikely scenario that maximum supply is achieved alongside low demand, as late as 2031).

• Up to 4,700Mt of supply, beyond the potential from existing projects, is required to meet cumulative demand up to 2030. This is equivalent to 8x the
current surplus.

• The cumulative shortfall will continue to increase as more corporate climate commitment targets fall due after 2030. Annual demand after then is
expected to be 2-4x annual supply from existing projects. The cumulative shortfall of supply could be as high as 98,000Mt by 2050.

• Removal credits are likely to experience disproportionately strong demand growth given their SBTI eligibility. They are also in shorter supply. The
cumulative supply of removal credits from existing projects (inclusive of today’s surplus) is expected to be exhausted as soon as 2026. Up to 710Mt of
additional removal credit supply is required by 2030, equivalent to 18x supply in 2021. Longer-term, up to 30,000Mt of new removal credits will be
required to fulfil net zero obligations by 2050.

• By the end of the decade, reduction credits will also be in short supply, with cumulative demand exceeding cumulative supply (inclusive of the
current surplus) by 500-4,000Mt up to 2030 (equivalent to 12x the current surplus), and 35,000-68,000Mt up to 2050.

Source: www.trove-intelligence.com

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 3. Projected supply
Total carbon credit supply – by year

Output from registered and pipeline projects is expected to peak at 500-620MtCO2e/yr between 2024-
2026. This is around 3x the demand for carbon credits in 2021. • Peak output from existing projects is
expected to occur between 2024-2026.

Historic Supply outlook from registered and pipeline projects by year (MtCO2e/yr) • Existing projects cannot exceed an annual
700 supply rate of 620Mt/yr. This will fall to
550Mt/yr in 2030 and 260Mt/yr in 2050.

600 • Given the limited market history, the level of

recrediting has a high degree of uncertainty.
Maximum
500 • With moderate limits on recrediting, these
Recrediting adjusted figures fall to 500Mt/yr, 380Mt/yr and
160Mt/yr, respectively.
400
Recrediting + issuance Recrediting +
rate adjusted Recrediting
Max issuance rate
300 adjusted
adjusted
Proportion of projects
moving from 1st to 2nd 100% 67% 67%
200 crediting period
Proportion of projects
moving from 2nd to 3rd 100% 67% 67%
100 crediting period
Proportion of pipeline
Retirements and
cancellations projects being 100% 90% 90%
registered
0
Annual issuance rate From From Risk
assumption PDD PDD adjusted

Source: www.trove-intelligence.com
Please refer to our recent publication ‘Projecting carbon credit issuances from registered and pipeline projects’ for more detailed methodological notes. Units: Mt is short for MtCO2e

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 4. Projected demand
Total carbon credit demand – by year

Demand is expected to reach 1,000-2,000Mt/yr by 2030, and up to 7,000Mt/yr by 2050

• Total carbon credit demand is expected to
reach 1,000-2,000Mt/yr by 2030, and up to
Carbon credit demand (MtCO2/yr) 7,000Mt/yr by 2050.
7,000
High demand • Demand from SBTi and Oil & Gas net zero
commitments is back-loaded, with most
6,000 growth from these sourced expected from
2030 onwards. Combined with sustained
Intermediate demand from carbon neutral claims, the
5,000 demand 2030s are expected to be the strongest
growth period up to 2050.
Carbon Neutral
4,000 • Carbon credit demand from carbon neutral
Low demand claims is expected to decline slightly in the
2040s as the share of companies reaching
3,000 their net zero targets increases.
CORSIA

• Demand increases from CORSIA, Oil & Gas

2,000 net zero, and SBTi net zero are expected to
Oil & gas net zero
continue to increase into the 2040s, more
than compensating for the reduced demand
1,000 Split by source of from carbon neutral claims.
demand only shown
SBTI Net Zero for intermediate
demand scenario
-

Source: www.trove-intelligence.com Units: Mt is short for MtCO2e

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 5. Supply-demand gap
Carbon credit balances to 2050 – all project types

On an annual basis, demand for all types of carbon credits could exceed supply by 2024. Cumulatively,
demand could exceed supply by 2027. • With modest limits to recrediting and
issuance rates applied to the supply
projection, a high-demand scenario
Annual supply and demand (MtCO2e/yr) Cumulative supply deficit (MtCO2e) could see an annual supply deficit as
7,000 soon as 2024.
95,000
High Demand
• If maximum supply is achieved, an
6,000 Intermediate annual deficit will be recorded
Demand 75,000 between 2025 and 2027.
5,000
• As more corporate climate targets
4,000 Low Demand 55,000 come due in 2030, annual demand is
expected to be 2-4x annual supply
3,000 from existing projects.
35,000
• The compounding effect of increasing
2,000
demand and decreasing supply means
just 2-7% of demand in 2050 would be
1,000 15,000 met by existing projects.
Max Supply Recrediting + Issuance-
adjusted Supply

0
-5,000

Source: www.trove-intelligence.com Note: recrediting and issuance-adjusted supply used in supply deficit graph

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 5. Supply-demand gap
Reduction credits - balances to 2050

Total potential supply from existing carbon reduction projects could, at most, provide 28% of the reduction
credits required to 2050. • Between 500-4,000Mt of additional
reduction credits are required to meet
total reduction demand up to 2030 –
Annual supply and demand - reduction credits (MtCO2e/yr) Cumulative supply deficit – reduction credits (MtCO2e)
inclusive of the current surplus. The
4,500 75,000 latter is equivalent to 12x supply in
High Demand 2021.
4,000
65,000
Intermediate • Total potential supply from existing
3,500 Demand
55,000 reduction projects can, at most,
provide 28% of the reduction credits
3,000
required to 2050. This does not take
45,000 into account the timing of issuances.
2,500 Low Demand

2,000 35,000 • With modest limits to recrediting and

issuance rates applied to the supply
1,500 25,000 projection, existing reduction projects
can meet only 11-19% of total
1,000 15,000 demand up to 2050 – a shortfall of
Max Supply Recrediting + Issuance- 35,000-68,000Mt.
500 adjusted Supply
5,000
0
-5,000

Source: www.trove-intelligence.com Note: recrediting and issuance-adjusted supply used in supply deficit graph

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 5. Supply-demand gap
Reduction credits – focus on 2030

Issuances of reduction credits from existing and pipeline projects will exceed demand up to 2025, after
when demand will exceed supply. • Existing supply of reduction credits
will not be sufficient to cover demand
up to the end of 2030 – inclusive of
Cumulative supply deficit to 2030 – reduction credits (MtCO2e) the current surplus.
4,000
• For reduction credits, a supply deficit
3,500 could occur as soon as 2027-2029 in
the absence of new project creation.
3,000
• A high-demand scenario will result in a
2,500 deficit of over 500Mt in 2027 –
2,000 equivalent to the entire surplus today.

1,500 • By 2030, new reduction projects (not

currently in the pipeline) will need to
1,000 supply an additional 1,000-4,000Mt of
credits should a supply shortfall be
500 avoided.
-
2022 2023 2024 2025 2026 2027 2028 2029 2030
-500

-1,000

Source: www.trove-intelligence.com
Note: recrediting and issuance-adjusted supply used in supply deficit graph

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 5. Supply-demand gap
Removal credits - balances to 2050

Demand for removal credits is expected to increase significantly after 2030 largely driven by science-based • 170-710Mt of new removal credits are
targets, greatly exceeding supply from current projects. required to meet total removal demand
up to 2030 – inclusive of the current
surplus. The latter is equivalent to 18x
Annual supply and demand – removal credits (MtCO2e/yr) Cumulative supply deficit – removal credits (MtCO2e) supply in 2021.

2,500 32,500 • The shortfall to 2030 is driven primarily by

High Demand increasing demand. Existing removal
projects have the potential to issue
Intermediate 27,500 between 450-550Mt by 2030 – around 2x
2,000 Demand total removal issuances to-date.
22,500 • As SBTi net zero commitments start to
1,500 come due from 2030 onwards, demand is
17,500 expected to increase significantly, further
Low Demand
exacerbating the removal shortfall.
1,000 12,500 • Total potential supply from existing
removal projects can, at most, provide
just 5-11% of the removal credits required
7,500 to 2050. This does not take into account
500
Recrediting + Issuance- the timing of issuances.
adjusted Supply 2,500
Max Supply • With modest limits to recrediting and
0 issuance rates applied to the supply
-2,500 projection, this falls to between just 4%
and 8% – a shortfall of 14,000-30,000Mt.

Source: www.trove-intelligence.com Note: recrediting and issuance-adjusted supply used in supply deficit graph

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 5. Supply-demand gap
Removal credits – focus on 2030

Up to 710Mt of additional removal credit supply is required by 2030, equivalent to 18x supply in 2021 • A supply deficit of removal credits will occur
sooner than for reduction credits – c.2026-
2028. This is due to lower supply volumes of
Cumulative supply deficit to 2030 – removal credits (MtCO2e)
removal credits.

700
• This deficit will then swell to up to 710Mt by
2030 – i.e., 18x supply in 2021 – as an
600 increasing number of companies being to
target net zero.
500
• Rising demand for removal credits can
400 already be seen in the voluntary carbon
market – retirements were up >70% in 2021.
300
• This is also reflected in removal credit prices
as demand shifts in favour of high-quality
200 removal credits.

100

-
2022 2023 2024 2025 2026 2027 2028 2029 2030
-100

Source: www.trove-intelligence.com
Note: recrediting and issuance-adjusted supply used in supply deficit graph

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