Morgan Stanley Says a ‘Reckoning’ Is Gripping CO2 Offsets Market

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The market for carbon offsets is approaching a “material tipping point” following months of bad news that’s spooked investors, according to an analysis by Morgan Stanley.

The voluntary carbon market has been gripped by a steady stream of scandals, leading to wild price swings and even collapsing valuations. That has implications for firms trading such credits, which have been saddled with vast piles of stranded assets, as well as for the companies using them to underpin green claims to customers and regulators.

Futures prices have fallen between 38% and 77% so far this year “amidst significant negative press of the market,” the analysts wrote. Spot market prices have fared better, on average, they said, but there’s been “a broader market softening across most major project types.” The upshot, they said, is that the market now faces “a reckoning,” but there’s reason to believe that “progress” is coming.

But independent scientific analysis of a project’s CO2 reduction claims often lags behind the issuance of the corresponding carbon credits, leaving buyers in the $2 billion market exposed to losses. That said, there are still a number of major corporations keen to tap the offsets market as they struggle to reduce their carbon footprints, with Morgan Stanley singling out Microsoft Corp., Shopify Inc. and JPMorgan Chase & Co. in its note.

 

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