Global Carbon Markets Snapshot - December 2023

Global Carbon Markets Snapshot - December 2023

Global carbon markets are in constant evolution. The market snapshot is produced monthly and provides a high-level overview of the key developments in select compliance and voluntary carbon markets.

Global Carbon Markets Snapshot - December 2023

In this issue

In this month's Global Carbon Market Snapshot, we cover key developments in select compliance carbon markets and provide an overview of the month in the voluntary carbon market.

*Please note: This snapshot is designed to provide a high-level overview of the key developments in compliance and voluntary carbon markets. Our in-market team produces daily and detailed updates and trade reports to CORE Markets software subscribers and clients. Contact us to find out more.

Compliance carbon markets

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

Australian Carbon Credit Units (ACCUs)

Generic ACCUs (No AD) started the month by opening higher at A$31.75, whilst HIRs opened sideways at A$35.00. Prices rose steadily across the month, with both Generics and HIRs closing the month at their price peaks of A$33.50 and A$36.00 respectively.

In the secondary market, a total of 1,916,000 units transacted over the course of December on the reported market, down from November's volume of 2.16 million units; trading volumes peaked on the 4th December with 295k of reported trades.

In its final round of the year, the Clean Energy Regulator issued 370,500 ACCUs to 24 projects, in comparison to 439,000 units from its previous round. Meanwhile, 7 new projects were registered to begin generating ACCUs.

For a comprehensive update on the ACCU market, read our ACCU Monthly Market Report here.

New Zealand Units (NZUs)

After the eventful month of November that saw prices lift ~NZ$5.00, December by contrast moved steadily lower following the failed (and year's final) quarterly auction.

The price opened the month at NZ$75.50, falling to NZ$69.00 following the failed auction on the 6th Dec. Of the 23million NZUs available at auction, 13.4 mil had been rolled over from previous failed auctions earlier in the year. As none cleared successfully, the units are to be resultantly cancelled.

In theory, this could be viewed to be bullish for the price as the units are removed from supply, while no demand was satisfied via the auction itself and would therefore remain outstanding. However, counterintuitive to the fundamentals the price remained largely subdued across the month, suggesting any gains had already been factored in. The price hit a low of NZ$68.70 on the 21st Dec, closing the year at NZ$69.15 on the 29th.

European Union Allowances (EUAs)

The rolling front EUA contract opened the month at €72.49/tonne, with its correlation to Front Month Dutch TTF, the European gas benchmark contract, holding strong, often a symptom of a lack of other market news to motivate price variation in the EUAs. However, bearish fundamentals in the TTF market as well as a combination of a reduction in power emissions, low industrial output and a shift away from carbon-intensive power generation caused the price to plunge to a 14-month low of €66.35/tonne on 15th December.

However, the market took a turn following reports that investment funds had increased their net-short position to a record 42 million in December. The upwards momentum continued in the second half of the month, largely due to a temporary pause on auctions until 15th January thus supporting the price which eventually closed at €78.06/tonne.

Voluntary carbon market

The international voluntary carbon market experienced a boost in December as record retirements and a surge in demand contributed to the market closing the year on a positive note.

Total retirements for December amounted to 37.9 million tonnes, over 10 million more than December 2022's figures, with annual demand reaching a historical high of 176.7 million tonnes.

Whilst retirements for Verra projects remained steady, notable increases in retirements were observed for ACR and Climate Action Reserve credits, representing a 65% and 44% rise respectively.

The REDD sector saw a boom in volumes transacted as buyers, seemingly for the purposes of retiring the credits, were able to benefit from the rock-bottom prices that certain REDD projects were asking for, whose integrity has been questioned over the course of 2023.

Nonetheless, rock-bottom prices for those certain REDD projects didn't reflect the market as a whole, as the continued fragmentation meant that more favourably perceived projects held a sturdy price premium, even for older vintages. For example, the VCS 337 Methane Recovery Project in Netherlands v2014 transacted at US$5/tonne mid-month.

Despite the sense that COP28's highly anticipated clarification of Article 6 was underwhelming, the market sentiment appears to be buoyed by participants' willingness to build on infrastructure and instruments in order to create a high-integrity and unified ecosystem. There is also growing collaboration in the market (see more below) to grow an efficient marketplace that will be prepared for Article 6 when it fully comes into play.

Other highlights include:

  • Market stratification continued, particularly in the REDD sector, where VCS 934 Mai Mdombe v2016 was seen trading at the start of the month at US$0.65/t, whereas VCS 674 Rimba Raya v2018 traded at US$7.50/tin 10,000t and VCS 1115 Jari/Amapa v2019 transacted at US$4.55/t in 36,000t mid-month.
  • The Afforestation, Reforestation and Revegetation projects continued to yield steady interest and price premiums; VCS 2083 Liangdu Afforestation Project in China vintage 2020-21 traded at US$6.95/t in 97,000t on the 20th December.
  • CBL’s N-GEO contracts softened further and remained in contango, with Dec24 settling at US$0.89, Dec25 at US$1.15 and Dec26 at US$1.72.
  • ICE's futures contract for CORSIA-eligible voluntary carbon credits closed the month with the Dec24 contract settling at US$10.50, Dec25 at US$9.00 and Dec26 at US$8.50.

Other developments

  • COP28 saw key integrity initiatives – the Voluntary Carbon Market Integrity Initiative (VCMI), Integrity Council for the Voluntary Carbon Market (ICVCM), We Mean Business Coalition, CDP, Science Based Targets initiative (SBTi) and Green House Gas Protocol – announce that they would come together to establish and ‘end-to-end’ integrity framework to help guide decarbonisation.
  • Also at COP28, 6 independent crediting standards announced they are joining forces to amplify the impact of carbon markets.

    They are: American Carbon Registry (ACR), Architecture for REDD+ Transactions (ART), Climate Action Reserve (CAR), Global Carbon Council (GCC), Gold Standard (GS), and Verra/Verified Carbon Standard (VCS) Program.

    These organisations will put in place a framework to increase the impact of activities under their standards. This includes learning from each other’s best practices, supporting independent assurance programmes, and aligning standards to common accounting and quantification principles.
  • While COP28 negotiations failed to reach agreement on Article 6.2 and 6.4, Article 6.8 did make it to the final draft text of the Global Stocktake. Article 6.8 guides the non-market mechanism of carbon credit settlement, such as direct investment, technology transfer and philanthropic engagements.

    Progress with the market focused sections - Article 6.2 and 6.4 - continues despite slower than hoped-for progress during COP28 negotiations. Article 6.2 is already being pilot tested by several countries, outside of the COP process. There are 139 projects in total under bilateral agreements.

    Article 6.4 progress is also continuing. While COP28 negotiations stalled due to lack of consensus around the project methodologies and inclusion of avoidance versus removals, the private sector is getting ready. Examples include Verra’s Article 6 labels and the Article 6 playbook developed in a collaboration between Singapore, Verra and the Gold Standard.

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.

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