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Voluntary: Carbon credits experience growing pains, even as outlook remains favourable

Damning media reports critical of the quality of historical forestry offsets saw prices of REDD+ credits crushed, sending the CBL N-GEO spot to below $3/tonne in the week ending Jan. 20. Prices were more than five times higher at the same point in 2022.

Ratings agencies and standards reacted to the media coverage with some defending the role of the voluntary carbon market amid the heightening scrutiny.

The average age of retired carbon credits fell by three years in 2022 as corporates sought fresher vintages, analysts at Trove Research reported.

Meanwhile, data aggregator AlliedOffsets forecast that credit retirements will rise sharply to 240 Mt in 2023 while issuances will hit 354 Mt, each an increase of more than 20% over last year.

Various reports outlined possible growth in the voluntary carbon market, with one from BloombergNEF placing its potential value at $1 trillion by the late 2030s if rigorous standards are introduced, while another from Shell suggesting an increase to $40 billion by 2030 from the current $2 billion.

The Integrity Council for the Voluntary Carbon Market (IC-VCM) confirmed its timeline for publishing final guidelines will be in March, with labelling of credits to begin in Q3.

The Africa Carbon Markets Initiative (ACMI) advanced on its 13-point action programme, revealing details on an already-secured $200 million in advance sales of carbon credits, while US climate envoy John Kerry also set out initial core principles and the first experts for an advisory panel for the Energy Transition Accelerator (ETA) jurisdictional carbon crediting mechanism.

In India, the newly formed Carbon Markets Association has signed an MoU with government agency the Association of Renewable Energy Agencies of States in a bid to help develop the nation’s emerging VCM and make sure it will play a key role in reaching the government’s 2070 net zero ambition.

Indonesia has struck a partnership with the World Economic Forum to help scale up the nation’s budding blue carbon sector. The Indonesian government expects the partnership to help catalyse strategic finance for marine-based offset projects, whereas WEF intends to sign similar deals with other countries to address the rapidly increasing demand for blue carbon credits.

Swiss removals firm Climeworks announced it has distributed its first carbon removal tonnes from its direct air capture plus storage (DAC+S) facility in Iceland to three North American tech giants, with one of the companies having previously pledged to pay a steep price for the credits.

Compliance: Brazil, New York move towards carbon market launches

Brazilian lawmakers are poised to pass carbon market legislation that will operationalise the country’s 2009 climate law and will cover both a compliance and voluntary market, experts told Carbon Pulse this month.

New York Governor Kathy Hochul (D) on Jan. 10 announced the state this year will develop an economy-wide carbon market with rebates, though she did not disclose if it will cover the state’s RGGI-regulated power generators.

California should consider numerous changes to its WCI-linked cap-and-trade programme that would ratchet down annual allowance supply to hit the state’s GHG reduction targets, and also study how no-trading zones could benefit air quality in disadvantaged communities, the state’s Independent Emissions Market Advisory Committee said in its draft 2022 annual report.

European Union carbon Allowance (EUA) prices registered a 6.6% gain over the week ending Jan. 20 to settle above €85/tonne as stronger natural gas and power prices helped to wipe out the prior week's losses, despite having reached the height of the winter season with plentiful supplies amid mild temperatures.

Carbon Pulse analysis showed that growing economic pessimism, increased borrowing costs, and policy uncertainty have forced many EU Emissions Trading Scheme (EU ETS) participants to either change the way they trade EUAs or to reduce their exposure to allowances, as speculators in particular appear to be backing away from the market amid the clouded outlook for 2023.

Analysts also said they did not expect a quick return to EUA buying for industrials that have suspended operations amid extreme energy costs, nor a sustained ramping up of coal-to-gas fuel-switching.

A review into the UK’s net zero strategy said that the country must set out a clearer pre- and post-2030 pathway for its ETS and give assurances for industry on carbon leakage risk, also calling for voluntary carbon market regulation within two years.

Australia’s ACCU market has responded bullishly to the government’s final draft Safeguard Mechanism proposal, which would see the emissions cap for covered facilities drop 27% between now and the end of the decade. Spot ACCU prices rose by 11% in the third week of January to hit $38.95, a level not seen in almost a year, as compliance buyers and speculators streamed to the market.

Finance: SK Group, UAE sovereign wealth fund form partnership

South Korean conglomerate SK Group has formed a partnership with the UAE’s sovereign wealth fund, Mubadala Investment, for the voluntary carbon market in Asia. Details are scarce, but the two said they agreed to establish a consultative body, acting as a steering committee or working group, to hammer out the details of their approach. Initial focus will be on increasing the reliability and transparency of carbon credit certification methodologies, a priority in Korea’s response to the EU’s carbon border adjustment mechanism.

A New York compliance carbon market investor, the Kepos Capital Carbon Allowance Fund, raised $108 million from three undisclosed investors, documents from the US Securities and Exchange Commission showed Jan. 20. Last year, the fund only raised $1 million from the same number of investors for its fund that invests in North American and European carbon allowances.

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