Global Carbon Markets Snapshot - July 2023

Global Carbon Markets Snapshot - July 2023

Global carbon markets are in a 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 - July 2023

In this issue

In this month's Global Carbon Market Snapshot, we cover key developments in select compliance carbon markets and discuss the overall sentiment of 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 active market participants. 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)

July was a volatile month in the ACCU market which, at times, illustrated the fledgling nature of the market and the liquidity challenges that come with that reality.

The spot generic market began the month at A$31.50, while the market for Human Induced Regeneration (HIR) was around A$32.50. Over time both markets softened steadily, though it was the generics that really lost ground, with the spot bottoming at A$24.00 in the second week of the month in an abrupt decline that caught many by surprise.

Affecting the market appeared to be the confluence of multiple factors, including:

  • an absence of buyers early in the new financial year,
  • an increase in sell side interest including from those exiting government Carbon Abatement Contracts (CACs), and
  • a contagion effect from the sharp decline in price of New Zealand Units (see more below).

Interestingly the A$24 price is in the range of what many have posited as the ACCU market’s medium term theoretical floor. Should the spot ACCU price fall below this level, many CAC participants would deliver into those contracts rather than paying the exit fee, therefore reducing available supply in the market.

As can often be the case, that sharp decline marked the bottom for the ACCU market with a steady recovery experienced across the remainder of the month to the extent that the spot generic contract closed at A$29.25, while the spot HIRs sat at A$32.75.

Implicit in those closing numbers is the fact that the differential between HIR and generic units had begun once again to grow, reflecting both interests in the individual markets as well as a tendency for some participants to swap between the two. The HIR/generic spread had reached a historical high of north of A$7 in August ‘22, before shrinking to par between mid-March and early May this year.

Clearly the market continues to experience issues of stratification based on method, with the generic contract increasingly trading as ‘generic No AD’ (avoided deforestation), a step that those hoping for greater uniformity in pricing will no doubt be lamenting.

This issue, however, likely reflects the fact that the early movers in the Safeguard category of buyers are quite sensitive to the units they purchase, likely the result of perceived public relations concerns if some of those units end up being publicly scrutinised for some reason.

For what will increasingly become a compliance-only market, the jury is out as to the necessity of project specific pricing. It is however likely that the early movers in the Safeguard category are also the ones most likely to discern in this way and that, with time, many more compliance buyers will come to the market who will not. As is the case in compliance markets, an eligible unit is an eligible unit, yet the demand for unique characteristics and qualities of a project that a buyer invests in suggests the buyer will continue to discern and the price will remain stratified for some time to come.

ACCU Spot Price Curve

New Zealand Units (NZUs)

The NZU saw a significant price rebound towards the end of the month following the NZ government’s reversal of its previous decision to ignore the recommendation from the Climate Change Commission to increase the carbon price cap. The decision was challenged in court and reversed by the government.

The spot price for NZUs was at N$41.75 at the start of July, dipped to N$37.00 early in the month and experienced a few fluctuations before soaring to a high of N$65.25 following the above policy update. It finished the month at N$59.75.

NZU Spot Price Curve - July '23

European Union Allowances (EUAs)

The EUA price initially lost ground over the first half of the month, with EUA futures drifting from €86.33 to €84.88 between the 1st and the 12th of July, due largely to stronger renewable energy generation. The price then found upward momentum in anticipation of the annual cut in auction volumes in August, gaining €6.00 across the third week of July, peaking at €90.89 on the 25th of the month. However, the gains were short lived with the price retracing to close the month at €85.69.

Voluntary carbon market

Key market movements

  • VCU REDD+ credits remained well offered across July as the market continues to feel the weight of the vast supply available, buying remained sporadic across the month, the supply numbers may be starting to feel the impacts of lower prices with issuance down compared with July last year. Specific project pricing stratification continues to be seen on market, such as  Rimba Raya V17 marked at US$6.60, Southern Cardamom V19 at US$5.00 and Katingan V20 at US$7.95.
  • VCU Community credits remained thin on liquidity as buyers purchase with a high level of project due diligence. A large volume trade for recent vintage Cookstoves traded at US$4.00.
  • VCU Renewable credits continue to trade with the Corsia-Eligible Offsets marked marginally lower across the month, trades for V19 and V20 were agreed below US$1.50.
  • Certified Emissions Reduction (CER) units remain at low levels, with a number of trades agreed across July below US$1.00.
  • CBL GEO contract opened at US$1.13, closing at US$1.16.
  • CBL N-GEO contract opened at US$2.22, closing at US$2.04.
  • CBL C-GEO contract opened at US$0.68, closing at US$0.77.

Other developments

July saw the Integrity Council for the Voluntary Carbon Market launch its Core Carbon Principles Assessment Framework. The framework builds on the Core Carbon Principles (CCP) standard which was released earlier this year. It sets out criteria that determine how carbon crediting programs and categories qualify for the CCP label.

It is expected that the first CCP-labelled carbon credits will be on the market by the end of 2023.

The CCP Assessment Framework is the latest of several independent but related guidelines designed to boost buyer participation in the voluntary carbon market. Another noteworthy example being the Voluntary Carbon Markets Initiative’s (VCMI) rulebook for companies on credible use of high-quality carbon credits. The Claims Code of Practice was released in June of this year.

We're here to help.

If you have any questions on the developments covered in this month's carbon market update and what they mean for your business, we are here to help. Get in touch with our in-market team.

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