The 29th Conference of the Parties (COP29) event in Azerbaijan wrapped up last week after 11 days of global leaders discussing how to tackle the climate crisis.
A key topic on this year’s agenda was establishing standards for a global carbon credit trading market. These systems set market-based limits on the amount of greenhouse gasses an emitter can produce. A carbon offset is essentially a voucher that allows an emitter to reduce its net greenhouse gas emissions by investing in projects that reduce emissions somewhere else.
These offsets — also referred to as allowances or credits— can be bought, sold, and traded. Lower emitters can sell their excess credits to higher emitters, which theoretically incentivizes polluters to reduce their carbon footprints.
Carbon offsets have been a talking point for over a decade, but a lack of consistent criteria has diluted their effects. Last week, however, delegates approved a deal to accelerate global participation in carbon markets and pour billions of dollars into emissions-cutting projects.
The deal gets us one step closer to wealthy countries to meet their emissions goals while helping poorer countries adopt greener energy and become more resilient in the face of climate change.
If global leaders can pull off a systemic approach to carbon credit trading, the results could be huge — for the planet and for the market. With clear standards in place, McKinsey estimates that the carbon offset market could reach $50B by 2030 — 25x its current size.
Even now, the three most common types of carbon offsets — renewables, landfill methane projects, and forestry — are gaining momentum and offering a wealth of opportunities for dealmakers.
In this PE Playbook, the Grata team has put together the need-to-know trends for investors considering making moves in the carbon offsets market, including:
- How the industry is fragmented
- Which kinds of offsets offer the biggest opportunities for investors
- Recent acquisitions in the space
The market map above is not intended to be an exhaustive representation of companies in the space.
Companies that provide services that fall into multiple segments are categorized in this report by their primary offering.
Industry Overview
Market Distribution
Geography
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Source: Grata
The US, UK, and Australia lead the global carbon offsets market by number of companies. Canada comes in a close fourth place with 180 companies. India trails in fifth place with 40 companies.
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Source: Grata
Within the US, California, Texas, and New York lead the charge in terms of carbon offsetting companies. While there is currently no national carbon credit trading system, some states have adopted their own versions.
California has the most prominent cap and trade system in the country. Meanwhile, New York is a member of the Regional Greenhouse Gas Initiative (RGGI), a cap and trade program made up of 11 states in the Northeast. The RGGI also includes Pennsylvania, Massachusetts, Maryland, Vermont, Rhode Island, Connecticut, Maine, New Hampshire, Delaware, and New Jersey.
Even without participating in cap and trade systems, the vast majority of US states are home to some carbon offset companies. Texas, Colorado, and Illinois, for example, are among the leaders in the country.
However, investing in companies that operate within established systems could give dealmakers a leg up. States with cap and trade systems have shown their commitment to reducing carbon emissions. Carbon offset companies operating within those states already have access to markets for selling carbon credits.
Ownership
Source: Grata
While public companies and their subsidiaries account for 77% of employees in the carbon offsets market, the space still offers a plethora of opportunities for dealmakers.
Currently, there are just under 1,000 independently owned carbon offsets companies that are ripe for acquisition.
Segment Distribution
Source: Grata
This report focuses on the following segments of the carbon offsets industry. Grata users can see curated lists of some of the companies used to create each segment by clicking the links below.
- Renewable Energy: Companies in this category provide carbon credits for investments in renewables, such as solar, wind, and hydro power.
- Landfill Methane Projects: As organic waste decomposes, landfills generate methane gas. Companies in this sector offer solutions to capture those emissions and burn them to produce clean energy.
- Forestry: Companies in this market provide solutions for carbon forestry projects, such as tree planting, native forest protection, renewable timber production, and carbon sequestration.
Public Comparables
Source: Grata
Carbon offsets have significant earning potential across the board, but landfill methane projects currently dominate in terms of returns.
Simply put, there’s big money in trash. Landfills are the third-largest source of methane emissions created by humans. Using them to combat climate change may seem counterintuitive, but innovation in the waste management space has turned them into a source of renewable natural gas (RNG).
Instead of flaring, landfills can capture the methane gas they produce and repurpose it into low-emissions fuel for cars and utilities. The technology used to capture methane gas is relatively simple and inexpensive.
Further, RNG is categorized as an advanced biofuel under the EPA’s Renewable Fuel Standard. The standard requires renewable fuel to be blended into fuel for transportation in greater amounts every year, which suggests that demand for RNG should only continue to grow. Combined, these factors make landfill methane projects a high-margin, high-return sector.
Private Comparables
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Source: Grata
Right now, renewable energy carbon offset companies see the most average revenue, and the highest average growth rate, in the global private sector. However, this trend could come screeching to a halt in the relatively near term. The cost of renewable energy in the last 20 years has plummeted, driving their profitability up. Because of this, renewable energy companies likely don’t need the extra cash from selling carbon offsets.
This gets even trickier when you take into consideration that renewable energy accounts for the largest share of carbon offset projects. Verra and Gold Standard, two of the most prominent carbon credit registries, stopped accepting new renewable energy projects in 2019, except for those headquartered in least-developed countries.
Landfill methane projects and forestry carbon offsets, on the other hand, don’t have the same “additionality” issue — meaning the extra bump from selling carbon credits still makes a meaningful difference to them. Dealmakers interested in carbon offsets could get more mileage out of these sectors.
VC & Growth Comps
Source: Grata
Early-stage companies across the entire carbon offset value chain are gaining lots of attention from venture capital (VC) and angel investors, attesting to the innovation in the space.
Most recently, Vaulted Deep, which offers underground sequestration of carbon captured from organic waste, raised a $32.3M Series A round led by Prelude Ventures.
Notable Acquisitions
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Source: Grata
ClimateTrade Acquires TeamClimate
Blockchain climate tech provider ClimateTrade announced its acquisition of Germany-based TeamClimate in April 2023. ClimateTrade reported that the deal would allow the company to offer carbon offsetting subscriptions to businesses as well as individual consumers.
If you’re an investor interested in companies similar to TeamClimate, try these:
ACT Commodities Group Acquires Green Project Technologies
Also in April 2023, ACT Commodities purchased a controlling stake in Green Project Technologies, a US-based SaaS platform designed to streamline climate accounting for corporations.
Bram Bastiaansen, ACT’s co-founder and CEO, said, “The ESG software space has always been on our radar. We've been searching this fast-growing sector for the company that would add the most value to our clients, and we've found it in Green Project Technologies.”
If you’re an investor interested in companies similar to Green Project Technologies, try these:
Vistra Corp Acquires Energy Harbor
In March, Vistra Corp announced its acquisition of Energy Harbor, a zero-carbon generation and retail electricity company, for $3.4B.
Jim Burke, Vistra’s president and CEO, said the deal “represents [Vistra’s] commitment to leading a responsible transformation of the country's energy supply to greener energy sources through the expansion of our zero-carbon generation portfolio while continuing to prioritize reliable and affordable electricity for the customers we serve.”
If you’re an investor interested in companies similar to Energy Harbor, try these:
Pilot Energy Acquires Worthington Energy Consultants
Pilot Energy, which provides energy procurement advisory services, purchased Worthington Energy Consultants for an undisclosed amount in April. Pilot’s acquisition of the Ohio-based company expands its footprint in the US.
If you’re an investor interested in companies similar to Worthington Energy Consultants, try these:
Origin Energy Acquires SolarQuotes
Origin Energy announced its intention to acquire Solar Quotes in October. Details of the deal have not yet been disclosed. Origin is a top player in Australia’s solar market. Adding Solar Quotes to its portfolio will reportedly bring its network of solar panel installers to over 400.
If you’re an investor interested in companies similar to SolarQuotes, try these:
Live Deals
Hundreds of live deals and active mandates are being showcased on the Grata Deal Network. Here’s an example of a mandate related to the carbon offsets industry:
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If you’re interested in this deal and you want to source more live deals in the carbon offsets space, register to learn more here.
Are you a sell-side advisor interested in generating inbound leads for your data center infrastructure deal? Get started here.
Get the Most Out of the Playbook
If you’re an investor interested in making moves in the carbon offsets space, Grata can help you put the insights in this article into action.
From in-depth market research to sourcing to pipeline management and relationship nurturing, Grata’s end-to-end dealmaking platform streamlines your workflows so that you can close more deals.
Schedule a demo today to get started.
