Morgan Stanley Outlines Do's and Don'ts for Carbon Offset Buyers

US investment bank Morgan Stanley has released a comprehensive guide for carbon credit buyers, providing crucial advice ahead of an anticipated rebound in the carbon offset market post-2025. This comes as the voluntary carbon market (VCM) is expected to grow significantly, from approximately $2 billion in 2022 to an estimated $100 billion by 2030.

Anticipated Market Growth and Regulatory Support

In a briefing note published this week, Morgan Stanley reiterated its April 2023 prediction of substantial growth in the VCM. The bank believes that numerous regulators and quasi-regulators are laying the groundwork for a robust carbon offset market resurgence in the latter half of this decade.

This briefing follows a recent announcement by high-ranking US government officials endorsing the VCM, introducing a code of principles for corporate buyers of offsets. Additionally, the briefing references guidelines from integrity initiatives like the Integrity Council for the Voluntary Carbon Market (IC-CVM) and the Voluntary Carbon Markets Integrity Initiative (VCMI).

Critical Advice for Offset Buyers

Morgan Stanley's briefing aims to help corporate buyers and investors navigate the complexities of the VCM by outlining seven key considerations:

1. Avoid Future Emission Offsets for Current Emissions: Do not use carbon credits from future emissions reductions to offset today's emissions. This practice can undermine immediate climate action.

2. Don't Delay Purchases: Concerns that purchasing credits may deter regulatory action on issues like methane leakage should not delay carbon credit purchases. Immediate action is crucial.

3. Diversify Offset Types: While nature-based offsets are popular, consider investing in non-charismatic offsets such as those from capping leaky oil wells or landfills. These projects are equally important.

4. Consider Projects Without Co-Benefits: Some essential projects, like direct air capture or capping methane wells, might not offer co-benefits but are critical for reducing emissions.

5. Develop Contingency Plans: Prepare for potential project failures by using carbon credit insurance or back-fill credits to ensure your offset goals are met.

6. Diversify Your Portfolio: Avoid overexposure to specific risks by building a balanced portfolio that includes both avoidance and removal credits, as well as nature-based and tech-based offsets.

7. Avoid Mandatory Scheme Allowances: Do not use carbon allowances from mandatory cap-and-trade systems to offset voluntary emissions. Large volumes of such allowances could disrupt these regulated systems.

The Importance of Strategic Purchasing

Morgan Stanley emphasizes that the focus should be on how to purchase carbon offsets effectively rather than questioning their value. Thoughtful and strategic purchasing of carbon credits is essential to ensuring that these instruments contribute meaningfully to emission reduction goals and overall climate strategies.

Conclusion

Morgan Stanley's guidelines provide a roadmap for corporate buyers and investors looking to engage in the voluntary carbon market responsibly. As the market is poised for significant growth, adhering to these do's and don'ts will be crucial for maximizing the impact of carbon offset investments and supporting global sustainability efforts.