Global Carbon Markets Snapshot - August 2023

Compliance carbon markets

This month we cover key developments in the Australian, New Zealand and European carbon markets.

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Australian Carbon Credit Units (ACCUs)

August ultimately became another volatile month, after the initial momentum that saw prices lift out of the July lows, began to fade.

• The Generic spot price opened at A$30.00 and peaked at A$32.25 by mid-month as the thin liquidity caused the buyers to have to pay higher as a means of securing supply. Then, after a further period of low liquidity coupled with the largest issuance of units so far this year, amounting to 787,000 units being issued to 53 projects, the market concluded the path of least resistance was seemingly downward. Prices for Generic spots plunged A$2.50 on the 30th, closing at A$28.75. However, the last trading day of the month saw prices make up most of the lost ground, closing at A$31.00.
• The HIR / Generic premium was relatively stable across the month, maintaining a circa A$4.00 spread, with the final trade of August being A$34.50 for the spot HIRs.
• The Environmental Planting ACCUs witnessed their first secondary market trade in August, with a 5k spot parcel trading at A$58.00 on the 2nd of the month. A subsequent 16k spot parcel traded at a higher price of A$60.00 on the 14th.
• August also saw the first soil carbon offers being presented to the market, with 5k soil carbon spots bid and offered at A$34.75 by A$51.50, before the market was sold off at month’s end.

Though the market was wide, and a trade level is yet to be set, the midpoint of the recent market was approx. A$43.00, representing a notable A$10.00 premium over generic unit prices at the time.

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New Zealand Units (NZUs)

Throughout August, the NZU price experienced consistent, positive momentum. Traders entered the market with renewed optimism, driven by the government's recent update in alignment with the Climate Change Commission’s recommendations.

Midway through the month, the price received an additional boost with the passage of legislation aimed at tightening industrial allocations within the market. Opening at NZ$57.50, the price predominantly moved in a single direction, closing the month at NZ$70.50, representing a remarkable 22.6% increase.

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European Union Allowances (EUAs)

The EUA price displayed indecision in the first third of the month, largely a reflection of the contrasting fundamentals in the European energy markets such as strong European gas storage levels and renewable energy generation in opposition to multiple unplanned gas field and processing maintenance outages as well as extreme heatwaves in Southern Europe.

The Futures price opened at €84.16 and rebounded between that level and a low of €81.76 up until 9th August.

The announcement of the Australian LNG infrastructure workers at Chevron and Woodside facilities voting in favour of taking strike action caused the benchmark European gas contract Sep23 TTF to rally by as much as 40% and contributed to the EUA's bullish movements, reaching €86.82 by the 14th August and hitting this month's peak of €88.92 on 22nd August; the rally being compounded by resilient demand amid strong technical signals and tighter auction volumes.

The latter third of the month saw prices come off however, as fundamental bearish signals such as weak industrial demand in the EU and high interest rates took hold, causing the market to eventually come to a close of €84.86.

Voluntary carbon market

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Key market movements

• Despite August being a quieter month for the international voluntary carbon market, promising indicators such as a heightened climate awareness and new methodology approvals appear to be buoying the market sentiment.
• The summer lull has seen prices stagnating as the market addressed high interest rates and ample supply, however many participants appear to be eagerly awaiting the initial credits under ICVCM'’s integrity initiative'’s Core Carbon Principles, expected in Q4, before re-engaging with the market following the year's rhetoric regarding offset integrity.
• The market outlook remains uncertain, however the credibility concerns have positively honed buyer appetite and influenced them to seek out higher-quality credits.
• Demand is focused on renewable credits for retirements and the higher regarded nature-based removal credits such as afforestation, reforestation, and revegetation (ARR).
• Pricing for these credits and other well-regarded projects remains steady, with Blue Carbon projects continuing to command premiums, whilst buyers continue to lean away from the abundantly offered avoidance credits.
• VCU REDD+ contracts are still experiencing a period of low demand, this is being reflected by the comparatively low futures contracts pricing. Bids for early vintage 1748 Southern Cardamom V14 were seen at US$1.50, while the CME N-GEO futures contract ended the month in contango from Dec-23, which is priced at US$1.96, Dec-24 at US$2.19 and Dec-25 at US$2.50 with an uptick in activity to close out the month.
• VCU Community credits remained well offered with the buy side thin as accusations on overestimation of the issuance volumes that this methodology generates loomed, cookstoves in Malawi projects V22 were offered at US$6.25 with cookstoves from India project V22 were offered at US$5.05.
• VCU Renewable credits saw sharp offers across the month with trading volumes low, buying has been focused on the lower cost credits for retirement.
• The CME GEO futures contract end the month with Dec-23 priced at US$0.92, Dec-24 at US$0.95, and Dec-25 at US$1.10.
• Certified Emissions Reduction (CER) units CP2 traded at US$0.80 during the month.
• Gold Standard V22 Indian solar traded at US$2.90 for a parcel of 78,000t.

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Other developments

• Verra issued an update to its Verified Carbon Standards (VCS) program. The latest updates to the standard and its associated documents are designed to increase usability, transparency and integrity and align it to other major carbon market initiatives.  This includes new versions of the VCS Project templates and new market labels for VCUs.
  
  Verra is holding a series of webinars in September to provide market participants with an overview of the changes. Details here: Verra Releases Version 4.5 of the VCS Standard

• VCMI is seeking proposals from consultancies to help develop indicators that determine and define whether a company is ‘On track’ to meet their near terms emissions budget. This piece of work is expected to provide additional guidance in the recently released Claims Code of Practice, and its ‘foundational criteria’ for companies seeking to make credible use of carbon credits as part of their climate ambitions.

Do you need help navigating the evolving market conditions?

The events outlined in this month’s update highlight the evolving nature of global carbon markets and the complexity of the net zero transition.

To discuss your unique requirements, get in touch with our team today for a no obligation discussion on how we can help.