Demand for carbon credits is bound to rise. Two major agreements are driving this trend.

The demand for carbon credits is bound to rise. Two major agreements are driving this trend.

First, there is the European reduction target for 2040. The EU has determined that carbon credits are essential to achieving the goal of a 90% emissions reduction by 2040 compared to 1990 levels. For 5% of this target, carbon removal - and thus carbon credits - may be used as a method. This represents a potential demand for many millions of metric tons of CO2 removal in the coming years.

The second factor that will drive up demand for carbon credits is CORSIA. Starting next year, all airline companies in all countries will be required to offset their carbon emissions exceeding 85% of the 2019 level with certified carbon credits. This, too, involves hundreds of millions of carbon credits.

Both the EU and CORSIA impose strict quality requirements on carbon credits and the projects to which they are linked. Currently, the supply of these high-quality credits is tight. The fact that demand is growing faster than supply sends a clear price signal.