FTSE 350 firms could face double the cost to offset carbon by 2030
The cost of carbon offsetting could more than double for businesses by the end of the decade, according to new research.
A report published by PwC found that FTSE 350 companies reported £38m in voluntary carbon offset purchases in 2022, but that this could increase by over 256 per cent to £135m within a decade.
The firm’s research, which analysed BloombergNEF pricing scenarios, also shows that these costs could rise to £365m by 2050.
According to the report, 80 per cent of the total volume of reported offsets fell in the category of avoidance offsets – projects such as renewable energy or forest conservation, which aim to reduce emissions entering the atmosphere.
The report notes that avoidance offsets have come under fire as “not fit for purpose,” with stakeholders arguing that only removal offsets, projects which extract and store CO2, like carbon capture, should be permitted.
The report found that in a scenario where only removal offsets could be purchased, costs would increase by over 1000 percent by 2030, to £438m. Under this framework, costs would continue to rise to a peak of £2.6bn by 2037.
Ian Milborrow, sustainability partner at PwC UK, said: “Companies across all sectors must consider the potential financial impacts of rising offset prices as part of their Net Zero planning. If we get to that stage where the use of offsetting to reach Net Zero targets becomes sufficiently expensive so as to become unviable, and in the absence of other strategies, companies will be unable to meet their Net Zero commitments in the timeframes they have published.”
“There are a number of steps that companies can take to address these challenges, including making longer-term offset purchase agreements, developing internal carbon pricing mechanisms and, wherever possible, focusing on decarbonisation to reduce their exposure to future offset price rises.
PwC’s report notes also that although 118 FTSE 350 companies (34 per cent) included a reference to carbon offsets in their reporting, only 19 made reference to cost. Of these, seven referenced future price increases.
PwC said that this “lack of transparency” makes it difficult for investors and stakeholders to work out how the risk of higher cost may affect individual companies’ Net Zero transition plans.
Millborrow added that “clear, consistent disclosure of a carbon offset purchasing strategy through annual and sustainability reporting – within the limits of commercial sensitivities – will provide critical transparency and reassurance for investors.”
In January, research from carbon market startup Kana Earth, found that FTSE 350 firms were upping their reliance on carbon offsets to achieve their net zero targets, with nearly half intending to increase spend dramatically over the next two years.