COMPLIANCE: Canada announces cap-and-trade plans for oil and gas sector
Canada unveiled plans to cap emissions from the Canadian oil and gas sector at 106-112 Mt per year by 2030, with an additional annual compliance flexibility of 25 Mt that can be met with domestic offsets from other sectors or contributions to a decarbonization fund. The government is aiming to introduce reporting requirements from 2026, but did not give a clear indication on when the market would launch.
Washington’s Department of Ecology (ECY) published a draft cap-and-trade bill that incorporates amendments to facilitate linkage between the state's carbon market with the broader California-Quebec scheme. This includes changes related to allowance purchase limits, electricity reporting and imports, and offset credits for projects on Tribal lands.
The California ARB announced that the auction reserve price offered at California and Quebec’s linked carbon market auctions will rise to $24.04 in 2024. Meanwhile, Washington’s 2024 auction reserve floor price was set at $24.02, the ECY said.
California's free carbon allowance distributions to industrial emitters and natural gas suppliers will rise to nearly 71.9 mln permits for the 2024 compliance year, where industrial sources accounted for 37.5 mln of the total – a 5.9% year-on-year increase from the 35.4 mln distributed for 2023.
EU ETS carbon allowance prices have slipped below €67 on Dec. 11, their lowest since Oct. 21, 2022. Values have continued to lose ground since ending November just above €70 – marking a 10% monthly loss, as investment funds continue to build short positions, mild weather lessens thermal power output and industrial prospects are gloomy.
The European Commission has said that it plans to monitor the potential for carbon leakage from the extension of the bloc’s ETS to the maritime sector next year, aiming to ease concerns of several southern member states who urged delaying the move.
The European Commission has unveiled draft plans to force the EU's dirtiest factories to pay for more of their CO2 output by curbing their ETS free allocations, a move some observers say would spur significant emissions cuts but still give a free ride to some major polluters. The draft Free Allocation Revision governs how free allowances are to be distributed over 2026-30 to heavy industries deemed a carbon leakage risk, with stakeholders given until Jan. 2 to respond in a fast-track lawmaking process that gives legislators limited scrutiny.
A definitive deal between the EU and the U.S. involving the decarbonization of the steel and aluminium industries is likely to be postponed until after next year's elections in both regions, as fundamental differences between the two sides have emerged and the EU's Carbon Border Adjustment Mechanism has complicated matters.
Turkey is planning to launch its own ETS as a way of achieving its Paris Agreement targets and addressing the EU's CBAM. The market will not initially be open to non-compliance players and will feature a rising emissions cap rather than a decreasing one. It will start with a pilot phase in 2025-26, with the possibility of extension into 2027. Installations from the power and heavy industrial sectors with annual emissions of more than 500,000 tCO2e will be covered.
Ukraine's government is persisting in its efforts to introduce an ETS by 2025 and in plans to re-build the war-torn country in a greener way, though these initiatives are undermined by Russia’s continuous attacks as well as increasing emissions and environmental damage caused by Moscow's aggression.
Annual demand for Australian Carbon Credit Units (ACCUs) is expected to increase to 26 mln units in 2030, compared to 1 mln currently, supported by rising buyer interest driven by the Safeguard Mechanism, according to the federal government's estimate. However, ACCU demand is anticipated to decline after 2031 as more on-site abatement opportunities are taken up to meet obligations.
The spot price in China’s national ETS began to drop amid shrinking demand from emitters after the mid-November 95% compliance deadline passed.
The latest quarterly NZ ETS auction declined again due to lack of demand, completing a year of failed allowance sales, resulting in an entire year’s worth of auction volume being cancelled.
South Korea has activated a temporary price floor in its domestic ETS, as the government aims to stabilize declining prices in the oversupplied market for the remainder of the year.
The Japan Climate Initiative (JCI), a coalition comprising major tech companies in the country, has called on the government to accelerate construction of the domestic carbon pricing scheme. Japan’s GX ETS is currently operated on a voluntary basis and will transition to a compliance scheme only after fiscal 2026.
Brazil has climbed up 15 spots due to progressive climate policies, while the UK slipped back by nine ranks due to policy rollback, in a report which found no country was on track to limit global warming in line with the Paris Agreement. The Climate Change Performance Index (CCPI) 2024, which compares the climate mitigation efforts of 63 countries, along with the EU, in its 19th edition found that no country was "strong enough in all categories" to achieve an overall very high rating and therefore, the top three places continue to remain vacant.
VOLUNTARY: Country negotiators push back on Article 6
Country negotiators have rejected key texts on Article 6 international emissions trade and carbon crediting at the final scheduled day of the COP28 UN climate talks in Dubai. This threw the future of markets as a climate solution under the Paris Agreement into turmoil. This very likely means countries will have to start over at next year’s COP29 talks in Baku.
Meanwhile, a slow trickle of correspondingly adjusted (CA) credits has begun to appear. Developer DelAgua said it has received letters of authorization from Rwanda for four Verra certified cookstove projects, signifying that the host nation will upwardly adjust its emissions tally when the units are exported to align with Paris Agreement accounting procedures. Gold Standard has also listed CA cookstove credits from developer Atmosfair, while GCC recently told Carbon Pulse that it has received letters of authorization from Oman and the UAE for projects to offer CA carbon credits on its registry. While most CA-based activity to date has been driven by countries intending to use the units to help meet their Paris Agreement pledges, interest in the units has been building for use in CORSIA and also some VCM buyers have been keen to purchase as a way to insulate against reputational risks against issues such as double claiming.
Six standard bodies – Verra, Gold Standard, ART Trees, CAR, ACR and GCC – have agreed to harmonize quantification and accounting. This marks a historic collaboration as they each seek assessment under the ICVCM's Core Carbon Principles (CCPs) integrity label.
Regulatory bodies, such as the ICVCM, VCMI, the GHG Protocol and the SBTi among others, have pledged to work together to create an end-to-end guidance framework for the voluntary carbon market. This included a clear endorsement of the practice of using carbon credits to "take responsibility" for a company's remaining value chain emissions as it pursues science-based targets to cut its value chain emissions, but the notion of being able to put credits towards part of a company's Scope 3 emissions was only set out as a tentative idea by VCMI that will be worked on over the coming year.
The U.S.-led Energy Transition Accelerator (ETA) jurisdictional carbon crediting mechanism to phase out coal globally will launch next April as an operational framework. Chile, the Dominican Republic and Nigeria announced they would join the marketplace as its first pilot countries, with the Philippines also expressing interest.
Public-private forest finance partnership the LEAF Coalition has unveiled its first finalized Emissions Reductions Purchase Agreements (ERPAs) to supply jurisdictional REDD+ credits from two nations to corporate buyers. Costa Rica and Ghana became the first forest governments to finalize the ERPAs worth over $60 mln in total for credits from 2017 to 2019, receiving $10/t for the units.
These are said to be the first agreements to involve funds from multiple corporate buyers in partnership with the public sector, which organizers say demonstrates the potential of the LEAF approach to rapidly scale finance to support forest governments in their efforts to reverse deforestation.
The U.S. Commodity Futures Trading Commission (CFTC) published a set of principles for voluntary carbon credit derivatives contracts for trade on CFTC-regulated exchanges. The proposed guidance outlines factors for CFTC-regulated exchanges – also referred to as derivative contract markets (DCMs) – to consider in the product design and listing of voluntary carbon credit contracts (VCCs).
Nasdaq launched a new technology it said can securely digitize the issuance, settlement and custody of carbon credits to pave the way for institutionalizing the global emissions market with its own carbon removal standard.
More than 50 institutions called on the U.S. Congress to index the Section 45Q Tax Credit for inflation, as well as establish parity between credit levels for geologic CO2 storage versus carbon utilization projects.
Lufthansa Group has agreed to pre-purchase direct air carbon (DAC) credits from the Airbus carbon removal scheme as part of its target to halve its net CO2 emissions by 2030 compared to 2019.
Singapore-headquartered carbon marketplace operator ACX has partnered with stock exchange operator Sao Paulo-based Brazil, Bolsa, Balcao (B3), to launch ACX’s Brazil platform expected in Q1 2024.
Singapore, among the most active at COP28 in securing Article 6 MoUs, has signed bilateral carbon trading framework agreements with Costa Rica, Fiji and Rwanda to pave the way for purchasing units aligned with Article 6.2 of the Paris Agreement.
A consortium led by two major South Korean companies, conglomerate SK Group and investment firm Shinhan, has taken an undisclosed stake in carbon project developer Ecosecurities to increase participation in nature-based and technology-based solutions.
South Korea-led intergovernmental organization Asian Forest Cooperation Organization (AFoCO) has secured a forest carbon project in Kyrgyzstan, where it plans to restore 600,000 hectares and contribute to achieving the Central Asian country’s climate goals.
South Korea has signed an MoU with Laos to strengthen their cooperation on REDD+ forest protection projects.
Voluntary market certifiers Gold Standard and Verra have partnered with Singapore to develop a playbook that would create standard practices to certify emissions reductions and removals.
Japan is preparing to expand the scope of the bilateral Joint Crediting Mechanism (JCM) to cover overseas agricultural projects, with plans to introduce projects that can reduce emissions from rice cultivation through the adoption of the alternate wetting and drying (AWD) technique.
From next year, Japan will become the first country to include full seabed carbon sequestration data in its UNFCCC greenhouse gas inventory, raising concerns among some observers this will open the door to offset more fossil fuel use. Carbon sinks reported in the UNFCCC context until now have largely related to land use, land use change and forestry. If most of the world follows suit and starts reporting seabed carbon data, a large amount of emissions could disappear from inventory bottom lines, but with no guaranteed equivalent adjustment in NDC targets.
Tokyo-based project developer Faeger has teamed up with FPT Corporation, a major tech company in Vietnam, to expand its carbon credit-generating business in Southeast Asia, with a focus on sustainable agricultural practices.
FINANCE: Corporations invest in nature-based solutions
Removals buyers’ club Frontier has sealed its biggest-yet offtake contract, agreeing to pay $57.1 mln for the supply of 154,240 offsets – amounting to $370/ton – over 2024-28 from Lithos, a developer of enhanced weathering solutions.
Microsoft has concluded its biggest deal to date for nature-based carbon credits, agreeing to buy up to 1.5 mln carbon removal credits until 2032 from Mombak, which last December announced a $100 mln Amazonian reforestation strategy.
U.S. tech giant Amazon is increasing its investment in two new agroforestry projects that will implement biodiverse agroforestry systems in smallholder farms in the Amazon rainforest basin and, together, will sequester some 500,000 tCO2 during 30-year crediting periods.
The DOE's Office of Fossil Energy and Carbon Management (FECM) will offer up to $40 mln to advance technical assistance at a regional level for carbon management initiatives and to support communities impacted by such projects.
Investment manager Mirova has invested $6.5 mln in Colombia-based developer of biodiversity credits Terrasos as part of the final deployment of its Land Degradation Neutrality (LDN) strategy. Mirova also announced plans to raise $350 mln for a new sustainable land management strategy.
Aviva Canada, a subsidiary of its UK-based namesake, will contribute C$6.2 mln ($4.5 mln) to Wild and Pine's StoneWoods Forest Carbon project to revitalize 1,280 acres (520 ha) of degraded land in Alberta as part of the insurer's global commitment of £100 mln ($126 mln) to advance natural capital and protect biodiversity.
Australia has decided to contribute A$150 mln ($98 mln) to two climate mitigation and adaptation funds to support its Pacific Island neighbors. The government has also announced it will distribute more than A$3 mln ($2 mln) in grants to four projects for the conservation of marine ecosystems under the Blue Carbon Accelerator Fund (BCAF).
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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.