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Global Carbon Markets Snapshot - January 2024

Global Carbon Markets Snapshot - January 2024

The market snapshot is produced monthly and provides a high-level overview of the key developments in select compliance and voluntary carbon markets. The coverage this month also includes an update on emerging biodiversity markets.

Global Carbon Markets Snapshot - January 2024

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.

The coverage this month also includes an update on emerging biodiversity markets.

*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)

Spot Generic ACCUs opened the month at A$33.75, 25c higher than December’s close of A$33.50. Human-Induced Regeneration (HIR) ACCUs continued to track the Generic price, with the circa A$2.50 premium holding firm. Both units experienced some volatility, before setting at A$35.00 for Generics and A$37.50 for HIRs at month’s end.

A total of 1,425,000 units transacted in the secondary market in January, down from December’s reported volume of 1.916 million units. Trading volumes peaked on the 10th with 350k reported trades.

ACCUs issued in January amounted to 1,125,300 units, an increase from December’s total of 1,072,840 units and brings the number of ACCUs issued under the scheme to over 140.4 million units.

For a comprehensive update on the ACCU market, read our January '24 ACCU Monthly Market Report here.

New Zealand Units (NZUs)

The NZU price was largely flat to start the year, opening at NZ$69.15 and softening to a low of NZ$67.25 by mid-month. The price remained thereabouts for the next week before finally breaking its range and moving steadily higher over the final week of the month to close at NZ$73.85.

This upward push late in the month sees much of the gains enjoyed in November recovered and may indicate the market ultimately concurs that the fundamentals lean themselves to the upside, following last month’s failed auction.

European Union Allowances (EUAs)

The European carbon price plummeted in the first half of January by around €13/tCO2, with EUAs expiring in Dec-24 opening at €75.96/tCO2 and moving to €63.15/tCO2 by 17th Jan, largely due to speculative traders re-establishing their bearish position after having unwound a portion of them in the last few weeks of 2023.

Mild winter weather in Western and Central Europe also contributed to the price drop.  EUAs continued to track TTF, the benchmark European gas contract, which remained soft. This further incentivised fuel-switching from coal to gas and therefore lowered winter demand for EUAs from the power sector. Additionally, healthy renewable and nuclear power production compounded the situation.

However, the bearish momentum weakened towards the end of the month as the positive German EUA auctions resulted in a stronger EUA outlook, with prices lifting significantly due to the stronger buying interest. News of traders potentially short-covering also added to a slightly bullish tone, as the repeated news of investment funds' increasing net short positioning indicated that a short squeeze situation may be on the horizon. The Dec-24 expiry EUAs eventually closed at €64.16/tCO2.

Voluntary carbon market (VCM)

The international voluntary carbon market had a positive start to the year, despite market participants slowly re-engaging after the holiday period and therefore fewer OTC transactions being heard.

Retirement levels reflected an encouraging opening to the year for the VCM; 6.164 million credits were retired in the second week of January and 6.6 million in the third week, higher than the weekly averages across 2021 to 2023.

Many of the credits being retired are from older vintages and less-favoured projects, therefore it has been speculated that the intention of the retirements is to cleanse portfolios of less-valuable projects that risk not being valid for the incoming ICVCM's Core Carbon Principles (CCPs) stamp.

Meanwhile, in a move that dampened the market atmosphere, the EU parliament voted in favour of banning companies from claiming carbon neutrality when marketing their goods if they rely on offsets.

Nonetheless, the VCM remained robust and steadfast against this month's criticism. For example, cookstove pricing saw little change despite recent research by the University of California, Berkley, which claimed that over-crediting within the methodology could be as high as 9.2 times greater than actual levels. The study was also issued in pre-print last year and its recommendations may already be driving buyer preferences. Cookstove methodologies across the board are also being revised.

Other highlights include:

  • In the REDD+ sector, the price crash that the less-favourable projects (such as Southern Cardamon and Kasigau Corridor) experienced last year has led to a boost in prices for the more highly rated projects (such as Katingan and Envira Amazonia). The higher rated projects,  are now yielding stronger premiums due to lower market supply.  One notable trade being VCS 1622 Conservation Coast REDD+ project in Guatemala vintage 2017 at US$3.50/tCO2e for over 45,000t on 17th January.
  • The Household Devices sector saw more action this month, trading multiple times across January and at a steady price. Transactions included a GS5642 Burn Stoves project in Kenya that traded at US$5.65/tCO2e for 10,000 tonnes.
  • The Afforestation, Reforestation and Revegetation (ARR) projects remain favourable in the market, but those that originate from China continue to undercut the rest of the sector’s pricing. A particularly low level traded for vintage 2018 Chinese ARR, on 22nd January, being agreed at US$3.20/tCO2e in 20,000t. This is in comparison to VCS 2082 Qianbei, China that was heard trading the next week for vintage 2016 at just 20 cents less at US$3.00/tCO2e in an unspecified volume.

Biodiversity markets

There’s been notable attention on nature and biodiversity at the start of the year.

  • Climate, nature and energy were major themes at the World Economic Forum’s annual meeting held in Davos between the 15th and 19thof January. A key highlight was the launch of the Global Risk Report 2024 which shows how environmental risks make up of more than half of the top 10 risks over the next 10 years.
  • The Global Reporting Initiative (GRI) launched an update to their biodiversity reporting standard that was initially released in 2016. The new GRI 101: Biodiversity 2024 standard is to be effective in 1 Jan 2026. This new update was made to better align corporate reporting to the IPBES 2019 report and 2022 Kunming Montreal Biodiversity Framework.

Biodiversity markets across the globe:

  • UK's Environmental Act, that requires all planning permissions granted must deliver at least 10% biodiversity gain, became  effective in January. This can be seen as the official start to the country’s biodiversity credits trade.
  • Following the act, demand for compliance clarity is rising with UK companies asking the government to strengthen current reporting requirements by incorporating TNFD’s system.
  • US based trading platform, Regen Network, to begin listing Terrasos biodiversity credits.
  • Australia's DCCEEW (Department of Climate Change, Energy, the Environment and Water) has launched a program to pilot test the Nature Repair Act 2023's implementation roll out. It includes testing on whether stapling biodiversity certificates into existing ACCU co-benefits would work, among other operational tests. The certification scheme is currently being run on farming projects. A national registry has also been built with more projects to come.
Biodiversity and nature markets are a quicky evolving space. The CORE Markets team has released an introductory guide on the topic. Learn more here.

Australian Biodiversity Credit Market as of Jan 2024

New South Wales BioBanking Credits

  • Total trades: 7; Species credits: 3; Ecosystem credits: 4
  • Volume transferred: 868; Species credits: 233; Ecosystem credit: 635
  • Market price:

    - Total market value: AU$1,527,623

    - Species credits: weighted price - $729.58; min-max range: $700 - $923.10

    - Ecosystem credits: weighted price - $2,138; min-max range: $923.10 - $7,333.33

Other developments

  • The Integrity Council for the Voluntary Carbon Market (ICVCM) has announced a new milestone in the implementation of its Core Carbon Principles project integrity framework.

    An expert group has completed its work to group over 100 active carbon credit methodologies into 36 different categories.

    Eligible methodologies will now undergo one of three assessment types, with first approvals due in March, 2024. Learn more here
  • The European Parliament has backed legislation banning greenwashing and misleading product information, and encouraging greater durability of goods.

    The new rules ban the use of claims such as ‘environmentally friendly’, ‘natural’, ‘biodegradable’, ‘climate neutral’ and ‘eco’ without proof.

    Claims can only be made based on official certification schemes or if approved by public authorities.

    The directive also bans claims that a product has a neutral, reduced or positive impact on the environment because of emissions offsetting schemes.

    Final approval from the European Union Council is needed before the directive is published in the Official Journal. The member states will then have 24 months to transpose it into national law. Learn more here
  • China launched its revamped China Certified Emissions Reductions (CCER) scheme on the 22nd of January.

    The CCER is the country’s voluntary carbon market and provides opportunity to organisations not captured by the National Emissions Trading Scheme to purchase carbon credits.

    The revised scheme will have a renewed focus on credit quality and will initially focus on four sectors: afforestation, solar power generation, offshore wind and mangrove planting.

    A research report from Minsheng Securities estimates that the CCER spot market could reach 20 billion yuan (US $2.8 billion) by 2025. Learn more here

Do you need help navigating the evolving market conditions?

The events outlined in this month’s update highlight the evolving nature of global carbon and environmental 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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