VOLUNTARY: Carbon removals increase more than 10 times over the past year
Transactions of durable carbon removals have increased by more than 10 times over the past year, according to Sylvera carbon credit ratings agency. It found that cumulative purchases of removals have soared over the past year to more than 6.5 Mt, as they attract significant early investment despite most of the credits not being ready to be delivered.
Demand for quality-focused carbon removal credits has significantly grown, despite an overall credit decline in issuances largely driven by downward trends in REDD+ and renewable energy credits, according to a report released by a carbon management firm Carbon Direct. It found that removals-focused buyers have grown the spot and forward purchasing markets five-fold to 15.1 million tonnes through Q3 from 3.1 Mt in 2021.
Thousands more companies have retired carbon credits this year than last even as voluntary carbon market retirement levels have dropped to around 19% year-on-year, according to AlliedOffsets.
Despite the uncertain future facing the voluntary carbon market, early-stage investment has held relatively firm in 2023, with some in the market pointing to an emergent “flight to primary” trend, as investors seek to avoid reputational risk in secondary and tertiary credit buying and instead channel capital directly into project development.
The UNFCCC has come under criticism from the Project Developer Forum (PDF) for proposing a broad-brush approach to improving cookstove carbon crediting methodologies, which the industry says lacks sophistication and fails to use accurate local data in calculating carbon savings.
Rubicon Carbon announced that it will offer clients access to carbon removal credits based on an array of project types in the latest version of its signature product, Rubicon Carbon Tonne (RCT), which represents portfolios of offsets that Rubicon creates and manages for its clients.
Carbon Direct launched The Buyer’s Guide to Sustainable Biomass Sourcing for Carbon Dioxide Removal (CDR) at Verge 23 in San Jose, California, as collaborators came together in a panel to provide additional context to proposed guidelines for forest biomass sourced from the global north, set to be implemented by 2026.
Quebec's environment ministry (MELCCFP) is looking at restrictions on the use of offsets to 4% from 8% presently over the 2027 – 29 compliance period within its cap-and-trade programme before the end of the decade and is also mulling more wholesale changes to the credit system thereafter.
A team of scientists from the University of Cambridge, along with collaborators from the University of Exeter and the London School of Economics, have developed Permanent Additional Carbon Tonne (PACT): a framework to value carbon credits.
A project developer and manufacturer Burn Manufacturing has issued sub-Saharan Africa’s first-ever green bond designated for the cookstove market to help fund its expansion amid the depressed market for carbon credits. It will use proceeds from the $10 million bond to increase its existing manufacturing capacity in Kenya as well as launch a new manufacturing plant in Nigeria.
Tech firm Hitachi will in November launch a demonstration project to test digital MRV and issuances of J-credits. The pilot is part of a government strategy to digitalise the J-Credit scheme in order to speed up and simplify the process for participants. The demonstration will be with a solar power project, though Hitachi plans in time to expand to other renewables as well as forest projects.
Also in Japan, project developer Green Carbon has partnered with tech firm DeepForest to streamline J-Credit generation from forest projects using AI and drone technology.
South Korean conglomerate SK has signed an MoU with the Fiji government on a project to plant and restore mangroves to reduce carbon emissions.
Taiwan is putting together voluntary carbon options for domestic emitters to go along with its planned carbon levy, and the government-backed Fisheries Research Institute is developing a methodology that will let developers create carbon credits from algae cultivation.
Much of VCM demand from Australia in recent years has come from the government’s Climate Active scheme, but after much criticism it is now being overhauled, with regulators looking to remove the possibility of using it to claim carbon neutrality. A consultation period is being held.
COMPLIANCE: California carbon permits skyrocket to all-time highs
California Carbon Allowance (CCA) values rocketed to a new all-time peak after the WCI jurisdictions said they will present modelling of how slashing their cap-and-trade budgets could impact permit prices.
GHG emissions in Quebec during 2022 exceeded the province's cap-and-trade programme limits for the fifth consecutive year, according to government data. The Quebec environment ministry revealed that CO2e output in the Canadian province reached 59.6 million tonnes across all carbon market-covered sectors in 2022, exceeding the 2022 cap of 54 Mt by 10.2%.
Compliance carbon markets are expected to grow by around 5% in 2023, despite a predicted decline in total trading volumes as a consequence of the war in Ukraine, according to a report by analysts at BloombergNEF. They estimate that eight cap-and-trade compliance markets will record a total value of $800 billion in 2023. The EU ETS represents the largest share, with an approximate 75% share of total trading and auction volume, down from around 90% in 2017.
China has on the highest level approved documents to officially restart its national offset programme after being mothballed for six and a half years. When fully up and running, it will generate CCERs that emitters can use towards 5% of their ETS compliance obligations. Regulators have also released methodologies for the first four project types to be approved after the restart, including afforestation, grid-connected solar thermal power, grid-connected offshore wind, and mangroves.
China has also released guidelines on emissions reporting requirements for 2023-25 for petrochemicals, chemicals, building materials, iron and steel, non-ferrous metals, paper production, and civil aviation – the same sectors market for future inclusion in the ETS. The move is seen as bringing their entry date into the carbon market closer.
Meanwhile, the CEA spot price is holding above 80 yuan ($10.94), as over 2,200 coal-fired power companies face the Nov. 15 deadline to hand over permits to cover 95% of their 2021 and 2022 CO2 emissions.
Guangdong province, which hosts the largest of China’s regional emissions trading schemes, plans to add ceramics, ports, and data centres to the scheme, with their compliance obligations set to start at Jan. 1, 2023. Around 200 companies would be added to the scheme.
South Korea is considering adjusting benchmark levels in its ETS to ensure better alignment with the EU ETS and minimise impact of CBAM. However, there are currently no plans to change the existing schedule for a gradual decrease in free CO2 permits.
In Australia, the Clean Energy Regulator has issued guidance for those who want to make use of multi-year monitoring periods (MYMP) under the reformed Safeguard Mechanism. MYMPs let emitters meet their caps on a three-year total basis rather than annually and can delay the influx of compliance demand in the market.
The UK's faltering carbon price could result in the loss of billions in treasury revenues and may expose British companies to large tax bills for exporting to the EU, warns trade group Energy UK in a report. It also warns that the slump in UK ETS prices has put investment in clean energy at risk and is impacting the country's international competitiveness.
The European Commission is open to feedback on which carbon removal methodologies it should focus on developing first for its proposed Carbon Removal Certification Framework, which aims to respond to the need to scale up carbon removals to achieve the EU's climate targets and deliver a common EU standard and a reliable certification framework.
The European Commission has unveiled plans to bolster the EU's faltering wind power capacity rollout, recognising that the European wind industry has recently faced difficulties in operating its business, with all the largest wind turbine manufacturers reporting significant operating losses in 2023 amid supply chain issues, inflationary pressures, and red-tape bottlenecks, which are hampering the industry’s ability to get projects over the line.
The EU nations' updated National Energy and Climate Plans (NECPs) are largely inadequate, not only to align with the Paris Agreement's 1.5C global warming limit, but also to comply with the bloc's 2030 target to cut emissions by 55%, NGO coalition CAN Europe coalition of NGOs has warned. Only 16 of the 27 member states have so far updated their 2030 plans by a June deadline, with CAN noting that several of these submissions closely resembled their 2019 NECPs without meaningful updates. Greater climate ambition in NECPs could have a bearish impact on EU ETS carbon prices, as the national plans would effectively curb demand for allowances.
FINANCE: GCF finances $736 million in 15 projects in developing countries
The UN’s Green Climate Fund (GCF) approved $736.4 million of funding across 15 climate projects in developing countries at its final meeting of the year in late October, support that is expected to be boosted to $3.6 billion once co-financing is included.
Stronger policy support for carbon removals and capture, utilisation, and storage (CCUS) technologies is required to scale capacity to meet 2050 net zero goals, according to the International Energy Agency’s flagship World Energy Outlook report, which also forecasts peak fossil fuel demand this decade based on the current outlook.
UAE Blue Carbon company has signed a collaboration deal with the Kenyan government for the development of REDD+ projects across millions of hectares in the African nation that could be traded under the Paris Agreement’s Article 6 provision. Blue Carbon has also signed similar MoUs with Liberia, Zambia, Tanzania, Zimbabwe, and Pakistan.
The 12 producer members of the Oil and Gas Climate Initiative (OGCI) have boosted their low carbon investments, emissions reductions, and carbon capture utilisation and sequestration (CCUS) development in 2022, according to an annual progress report. It showed the firms had collectively increased their low-carbon investments to $24.3 billion for 2022, up 66% year-on-year.
Kazakhstan has become the 28th country to sign on to a bilateral framework with Japan and establish a Joint Crediting Mechanism (JCM). Japan aims to generate 50 – 100 million credits through the mechanism by 2030 to use towards its Paris Agreement commitments.
Malaysia will establish a $210 million financial instrument that it intends to use to fund nature protection and restoration by generating carbon credits with biodiversity benefits, the government has said.
Canadian Prime Minister Justin Trudeau declared a temporary three-year home heating oil exemption and a doubling of the carbon tax rebate for rural residents.
The US Department of Energy (DOE) will allocate $36 million for 11 marine CO2 removal (mCDR) projects across the country, as the agency expands its support for advancement of the nascent technology.
New York Governor Kathy Hochul (D) announced that 25 projects, three offshore and 22 land-based renewable energy projects will be granted awards for a total of 6.4 GW of clean energy and 9.4 Mt/year of GHG mitigation once completed to revitalise developers struggling under economic pressures and protect the state's climate goals.
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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.