UNEP’s fifteenth Emissions Gap Report, released on 24 October 2024, reveals an expanding disparity between global climate pledges and the actions required to limit warming to 1.5°C. The report’s findings reinforce the importance of scaling a high-integrity voluntary carbon market (VCM), especially as time is running out, to close the emissions gap and minimize long-term climate risks.
Key Takeaways
- Current Targets are Insufficient for Climate Goals
Global GHG emissions are rising, with G20 members accounting for 77% of the total. Despite commitments to reduce emissions, current nationally determined contributions (NDCs) fall far short. UNEP projects that, even with full implementation, these NDCs align with a 2.6°C warming trajectory. For the VCM, this substantial gap implies a likely increase in demand for high-quality credits as organizations look to the VCM to close their emissions gap. - A 1.5°C Pathway is Slipping Away
To keep the 1.5°C target viable, global emissions must fall by 42% by 2030 and by 57% by 2035, requiring reductions of 7.5% annually. This reduction pace is unprecedented and demands both immediate policy action and substantial investment—estimated at $0.9 to $2.1 trillion annually until 2050. As countries struggle to meet these targets, the VCM is likely to see increased reliance on high-integrity credits, especially those that comply with Article 6 standards.
- Reductions with Existing Technologies Under $200/tCO₂e are Achievable
UNEP highlights that advancements in wind and solar technology could feasibly bridge the emissions gap by 2030 and 2035 at costs below $200 per ton of CO₂e. Achieving this, however, will require overcoming policy, institutional, and technical challenges, along with enhanced support for developing nations. This suggests that VCM investments in renewable energy credits and offsets generated from sector-specific reductions could align with these economically viable pathways, spurring demand for affordable, high-integrity credits.
- Accelerated Demand is Needed for Nature-Based Solutions (NBS) and Renewable Energy Credits
Nature-based solutions, including forest conservation, could deliver around 20% of the required emissions reductions, while renewable energy could contribute up to 38% by 2035. This focus suggests that NBS and renewable energy credits would need more demand, so receiving a Core Carbon Principles (CCP) label could be vital for those credit types. Registries may prioritize obtaining CCP labels for methodologies under these two categories with the help of the Integrity Council for the Voluntary Carbon Market (ICVCM). Despite recent rejections of related project types, the VCM could see an earlier-than-expected resurgence in the prices of these credits.
Under the Paris Agreement, countries are required to set 2035 emissions reduction targets by 10 February 2025. With the release of this report ahead of COP29, the call for urgent action could impact discussions at Baku in various ways, including:
- Nations showing comparatively less ambition through their NDCs could make major changes from the increasing pressure of rapid climate action
- More progress than expected on Article 6 discussions towards the complete operationalization of an international carbon market
- Registries and organizations focused on VCM integrity altering their priorities to better align with a 1.5°C pathway, which includes shifting the timeline for changes to particular crediting methodologies
As the call for rapid climate action leads to more changes in the VCM, supply and demand may be impacted across different time horizons. For example, the release of this report could have more immediate impacts on VCM demand, which may put upward pressure on prices in the short term. However, VCM supply may take some time to catch up and meet the increasing demand and capitalize on the high prices for particular credits. If the price for a type of credit increases, selling those credits becomes more profitable, which drives more investment into those projects by developers. However, generating those credits takes time, so the changes in supply typically take longer after a price signal relative to demand. As more of these projects emerge, those issuances could counteract and stabilize some demand-driven price growth in the long term.
Overall, the report points towards the growing need for the VCM to deliver on its potential by driving the necessary investment towards global mitigation efforts. The Emissions Gap Report 2024 signals a need for increased VCM participation to help meet unmet emission reduction targets. With regulatory efforts lagging, the VCM could see a significant change in the expected demand, participation and price growth.
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