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.
*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.
This month we cover key developments in the Australian, New Zealand and European carbon markets.
The month commenced with the generic market rising by A$0.75, reaching A$31.00, and the HIRs opening at A$34.00. Highs were observed at A$32.25 for generics, closing the month at A$31.50, while the HIR traded to A$35.50 and closed at A$35.00.
The secondary market saw a total traded volume of 2.16 million units, up from October, with volume spot and forward deals agreed as Safeguard demand picked up in the lead up to the Christmas break. November's ACCU issuance remained relatively stable at just over 1.9 million ACCUs.
Highlighted in the recent quarterly carbon market update from the clean energy regulator, Direct Safeguard entity holdings surged by 2.3 million ACCUs, paralleled by a 2.2 million increase in project proponent holdings during Q3. Consequently, the net surplus now stands at a substantial 33.5 million.
November was a relatively eventful month for the NZU market. Prices opened at NZ$69.90 and moved steadily higher to NZ$71.25 by the 8th after the conclusion of the Special vote count confirmed National, ACT and NZ First were to form the Government. Momentum then waned, with the price retracing to NZ$69.75 by the 13th.
Then, on the 24th prices took off, with the announcement of a significant shift in New Zealand's climate policy from the newly formed National-led coalition government. A decision was made to halt the ongoing review of the emissions trading scheme (ETS), with the aim to provide "confidence and certainty" to New Zealand's carbon market.
The coalition also stated they plan to lift the ban on offshore oil and gas exploration and pursue the development of blue hydrogen and natural geological hydrogen. Despite concerns from environmental groups and Pacific Island neighbors, the new government maintains a split-gas approach to methane and CO2 emissions until 2050 and will review methane science targets in 2024.
The NZU prices responded to these developments, with spot NZUs closing at $74.80 to end the month.
(At the time of writing, the price has since softened again to $69.00, for reasons that will be explored in next month's update).
The Dec-23 EUA contract opened the month on a bearish note, falling to an annual low of €74.88 by 7th of November. The European energy markets continued to put downwards pressure on prices due to ample gas supply in Europe (EU gas storage was 99.41% full by the end of the first week of November as per AGSI+). Warmer and windier weather than average led to strong renewable energy generation which compounded the situation.
Nonetheless, the benchmark futures contract saw a jump in the second week as gas prices recovered, renewables output fell, and maintenance began on French nuclear reactors. This triggered short traders to start buying back, upon doubts that the prices would go lower.
The Dec-23 EUA price reached its month's peak of €79.74 on the 15th of November as macroeconomic influences, such as the falling US inflation rate, fed into positive investor sentiment.
However, the bearish fundamentals took hold again in the second half of the month, with mild temperatures perpetuating the tepid demand. By the 29th of November, the EUA price plummeted to a new 13-month low of €71.02, after data from futures exchanges disclosed that investment funds had reached a record short position. The futures contract eventually drew to a close of €70.81 by month's end.
The international voluntary carbon market saw a pick-up in activity this month including an increase in retirements as the end-of-year corporate compliance deadline loomed.
Market fragmentation continued, leading to seemingly less consistent transaction levels in the VCM. Prices varied in line with project specifics (eg its location and vintage), as opposed to the overarching methodology. The REDD market was rocked this month as Xpansiv CBL withdrew five projects from N-GEO eligibility over the course of November: Kariba, two Kasigau corridor projects, Rio Anapu and Southern Cardamom. The move came after Verra paused issuances and placed the CCB labels of the projects 'on hold'.
The recalibration within the market to tackle the integrity questions is beginning to come into play, with COP28 (currently underway) and other developments in integrity frameworks (see other developments below) appearing to be a catalyst for change this month.
Market movement highlights:
Since its launch in October, the contract has experienced muted volumes, mostly because it is waiting for eligible credits granted through the CCP to appear, as CORSIA Phase 1 (2024-2026) requires correspondingly-adjusted credits.
The pricing of the contract, however, appears to be a positive indication of how corresponding adjustments will be valued in the market.
The events outlined in this month’s update highlight the evolving nature of global carbon markets and the complexity of the net zero transition.
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