Global Carbon Markets Snapshot - November 2023

Global Carbon Markets Snapshot - November 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 - November 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)

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.

New Zealand Units (NZUs)

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).

European Union Allowances (EUAs)

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.

Voluntary carbon market

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:

  • VCU REDD+ OTC volumes are still on the rise, with projects that are perceived as being high quality such as VCS 1477 Katingan and VCS 674 Rimba Raya enjoying a surge in interest;
  • VCS 674 v2018 credits traded at US$7.00/tCO2e in 42kt on 27th November and VCS1477 v2017 traded at US$4.75/tCO2e for 20kt on 30th November, up from the last heard trade for that vintage on 23rd November at US$4.55/tCO2e for an unspecified volume.
  • Meanwhile, rock bottom prices were seen transacting for other, less well-regarded REDD projects, particularly for those projects whose CCB labels have been placed 'on hold' by Verra.- VCS 981 Pacajai v2017 traded at US$0.35/tCO2e towards the end of the month and was heard trading as low as  US$0.15/tCO2e at a later date in an undisclosed volume.
  • CBL's N-GEO contracts experienced a brief lift in price following the removal of Kariba and the two Kasigau corridor projects from their list of deliverable projects. However, the contracts went on to plummet, with Dec23 settling at US$0.96, Dec24 at US$1.22 and Dec25 at US$1.89, with their contango still firmly in place.
  • ICE's futures contract for CORSIA-eligible voluntary carbon credits closed the month with the Dec24 contract settling at US$10.20, Dec25 at US$9.45 and Dec26 at US$8.95.

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.

Other developments

  • The Integrity Council for the Voluntary Carbon Market (IC-VCM) commenced its assessment of Carbon Credit Programs and Credit Categories using the Core Carbon Principles (CCP) Assessment Framework. Gold Standard (GS) was the first carbon market standard to submit its programs for assessment. Learn more here.

    Verra put forward the majority of its VCS methodologies to the IC-VCM to be assessed against its CCP Assessment Framework. This makes them the third standard to apply to the CCP program, following GS and CAR.  Learn more here.

    Verra chose to withhold some of its REDD+ methodologies from assessment, specifically those relating to avoided unplanned deforestation.  It has since launched a new REDD methodology to supersede the earlier methodologies – although credits issued under the latter will continue to exist.  Learn more here.
  • In an eagerly awaited move, the Voluntary Carbon Markets Integrity Initiative (VCMI) released additional guidance to its Claims Code of Practice (Claims Code) – just hours before the opening of COP28.

    The new guidance provides a clearer pathway for companies making relating to their use of high-quality carbon credits under the new Claims Code. It includes the Monitoring, Reporting and Assurance (MRA) framework and associated thresholds for making Silver, Gold or Platinum claims, as well as a beta version of the ‘Scope 3 Flexibility Claim’.

    Early adopters of the Claims Code include Bain & Company, BCG, Better Drinks, Natura and Sendle.

    Read the press release here, or watch the briefing here.
  • The COP28 global climate summit is running in Dubai from the 30th of November until the 12th of December with the operationalisation of the Article 6.4 carbon market framework key item on the agenda.  More on this development in next month’s update.

    In the meantime, there are some emerging news of landmark collaborations between key carbon market integrity bodies and independent crediting standards. 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 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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