Why Are Carbon Prices Inconsistent?

Cool Effect
Cool Effect
Published in
4 min readApr 25, 2023

Across the corporate world, there’s been a huge increase in interest in the voluntary carbon market — the system whereby carbon emitters can voluntarily offset their unavoidable emissions by investing in high-quality carbon credits and supporting carbon-reducing projects across the globe. According to the latest figures from Ecosystem Marketplace, the total market value for voluntary carbon market transactions in 2021 was nearly $2 billion — nearly quadrupling in market value since 2020. Nearly 350 million carbon credits were issued in 2021 alone, as more companies set ambitious net zero targets in line with the Paris Agreement, and shareholders and investors continue to push for ESG performance.

So how much does a company pay for one carbon offset, which represents a tonne of carbon? The answer: it depends. Companies don’t get to determine the price of their carbon offsets themselves. Instead, they purchase offsets that have been verified against a scientific methodology, issued by a Standard and listed on a secure registry. From there, carbon brokers, traders and nonprofits will connect projects with interested buyers. And even then, there are still a number of additional factors that go into carbon pricing.

Carbon is an unregulated market and as such, pricing is often confusing. Without a centralized universal cost, the price of a carbon offset can vary greatly, based on location of the carbon project generating the offset, the type of project, the age of the offsets themselves, and a few other additional factors like added fees.

Location

When you’re dealing with carbon projects all around the world, you’re bound to run into some logistical differences. Projects located in countries with less developed infrastructure can sometimes generate additional logistical costs, and different regulatory restrictions in different parts of the world can also have an impact on the overall price of a carbon offset.

Isolated locations can often incur additional logistics costs due to poor infrastructure, difficulty of travel, or differing regulatory restrictions or limitations.

Project Type

We’ve talked about this before, but there are a lot of different types of carbon projects out there — and while variety may be the spice of life, it tends to complicate things when attempting to put a universal price tag on projects. The folks over at the NRDC sum it up nicely:

Each carbon offset credit is associated with the emission reduction from a specific project. For example, in a forest management project, a landowner chooses to manage the land so as to increase the carbon that is sequestered relative to a projection of what would have occurred in the absence of the project, and then sell the offsets associated with the project. The money the landowner makes from selling the offsets is used to pay for the cost of implementing the project and maintaining it over time, providing a financial incentive to maintain the forest as opposed to cutting it down.

Essentially, no two carbon projects are the same, and those myriad differences have a tremendous impact on the price and quality of the carbon offsets associated with them.

Age

The age of an offset, also known as its “vintage,” can refer either to the year in which it was issued, or the year in which its associated GHG reduction occurred — for some projects, there can be quite a gap between those dates. Much like a fine wine, while vintage is helpful for understanding time frames and context, the vintage of an offset does not necessarily indicate anything about its quality. And much unlike a fine wine, the older the vintage, typically the cheaper the price.

Added Fees

While not all carbon projects are created equally, the same — unfortunately — goes for carbon project intermediaries. While offset prices typically range from less than $1 to $45 per tonne of carbon dioxide equivalent (CO₂e), most prices for well managed and regularly verified carbon projects tend to be between $6 and $14 per tonne.

If a project sells for less than a few dollars per tonne it is hard to see how the sale of carbon credits can have a real impact on the project operations, so some additional research is recommended before making your purchase. For this reason, unless the reason for the low price is explicitly stated, we recommend some additional skepticism when it comes to very cheap offsets.

Prices can also vary because of added fees tacked on by some offset providers. While often those fees are unavoidable (payment processing fees, etc), it’s important that whoever you purchase carbon offsets from is open, honest, and above all, transparent when it comes to their pricing.

For instance, Cool Effect has a 9.87% fee which is included in our price per tonne. We do not mark the price up to the nearest dollar and we do not buy credits for a low price and resell them at a higher price.

When it comes to carbon offset pricing, trust — and research — is key.

The more transparent providers are when it comes to pricing, the better. Like we said, carbon offsets aren’t a permission slip to pollute, they’re a useful tool for reducing otherwise irreducible emissions, and humanity needs all the tools it can use right now in the fight against climate change. Ensuring that voluntary markets have high integrity and clear pricing is a critical step toward a more universally agreed upon (and internationally regulated) carbon market.

We already know that if we are to achieve the success we seek and the reduction in emissions that the planet requires, it’s going to cost us. We created the Cool Effect model to help bring integrity and further transparency to the voluntary carbon market to help ensure that the costs we all pay are as fair, consistent, and trustworthy as possible.

There’s no price too big when it comes to saving the planet — the key is making sure we all can trust the prices.

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Cool Effect
Cool Effect

We’ve reduced over 8 million tonnes of carbon emissions. And we’re just getting started.