The Growth in Commitments to VCM
Exhibit: Announced Capital Raises Since 2021 and Estimated Annual Project Investments, 2012-2022
Source: Trove Research
Key Points: Trove’s latest VCM Investment Trends report finds ~US$18B raised for carbon offset crediting in 2021-1H23, including >$5B from corporates. This spurred 50% investment growth in 2022. Trove cites that a tripling of current investment to 2030 is required in a 1.5°C scenario; yet even sustaining recent levels may be difficult given integrity attacks.
Recent report on investments into the VCM. A mid-September report from Trove Research updates on (1) capital raise for the Voluntary Carbon Market (VCM), reflecting survey results and the canvassing of public announcements, and (2) recent capital spend (i.e., investments) on projects. High level takeaways of the report include:
- ~US$18 Billion (B) of capital was raised in 2021 through 1H2023 for carbon credit issuance.
- Of the total, $5B was committed by corporates, with the balance from financial investors (funds, etc.) (see left chart of Exhibit and below for color on corporate sponsorship).
- Use of the capital raises is reflected in growth in project investment. Total VCM investment in carbon credit development grew to $7.5B in 2022 from $5.0B in 2021 (see right chart of Exhibit and below for color on the investments). Half of the 2021 spend went towards “feasibility”, i.e. early-stage, expenditure, which converted to later stage (“development” and “capital”) expenditure in 2022.
Corporates commit over $5B. 2021 marked considerable growth in corporates making direct commitments to purchase credits. Sizable corporate commitments over the last 18 months have included:
- single company to single projects, such as Hess’ $750MM commitment to buy credits tied to Guyana forest preservation;
- single company to a portfolio of projects, such as JP Morgan’s $200MM commitment to sponsor Carbon Dioxide Removal (CDR) activities; and
- multiple company to collective efforts to foster investment at-scale in both nature based solutions (e.g., the LEAF Coalition) and CDR new technology development (e.g. Frontier)
Project investment detail by project type. Nature based projects (Nature Restoration and REDD+) accounted for 50% of project investment vs. closer to 40% from 2012-2019. Other drivers of the growth included methane capture/management (Non-CO2 Gases in the chart) and cookstoves (Energy Efficiency in the chart). Renewable Energy declined (even in absolute terms) as crediting in all but lesser developed economies was ruled ineligible for crediting given technological/cost reduction progress. Carbon Engineering, which includes technologies targeted at CO2 removal, was a negligible target given the early stage of these technologies. See the Payne Institute VCM primer for more on project types.
The report also notes that there are 1,500 newly registered projects since the beginning of 2021 (by the largest registries, which dominate the market). These claim to be able to reduce CO2-equivalent emissions to the atmosphere by ~300 million tons per year (Mt/yr.), bringing the total claimed reduction potential of registered projects to ~760 MtCO2e/yr. With that said, the report acknowledges that not all claimed carbon reduction will necessarily be achieved.
About Trove Research. Trove Research provides Voluntary Carbon Market supply and demand analysis, including market forecasting and influencing factors such as corporate commitments and government policy.
9/25/2023