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Global Carbon Markets Snapshot - October 2023

Global Carbon Markets Snapshot - October 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 - October 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 market commenced the month at an opening price of A$31.00 and concluded at A$30.25 for generic units. Meanwhile, HIR units started the month at A$34.25 and ended at A$33.50.

The highlight of the month's activity occurred on the 11th of October with the market clearing large volumes ranging from A$30.50 to A$32.50 for both Generic and ‘Generic No AD’ units. During this month, we observed a softening of prices for the less frequently traded Savannah Burning and Planting units as buyers favoured the more liquid certificates.

The secondary market witnessed a total traded volume of 1.3 million units. The ACCU issuance remained largely unchanged month-on-month, with a total of just over 1.9 million ACCUs being issued in October.

Primary deals experienced heightened activity, as both long-term buyers and sellers sought to secure forward pricing and volumes.

New Zealand Units (NZUs)

The NZU price was relatively flat at the start of October due to New Zealand’s general election and the expected succession of power to the National Party. Post the mid-month election, the price   saw a small up-tick , which was largely priced in, closing the month at NZ$70.00.

European Union Allowances (EUAs)

The EUA benchmark futures contract opened the month on a downwards trajectory. It tracked the European energy markets that were experiencing lower demand caused by warmer temperatures and a more stable supply from the North Sea. This led the Dec23 EUAs to settle at €79.65 by 3rdOctober.

However, the earlier breach of the key psychological level of €80 triggered sizeable buying interest derived from speculative players wishing to cover their short position. This was reflected in the prices returning to €81.67 by the 4th of the month.

Reports that fossil-fired power generation in the EU dropped 21% year-on-year in the first nine months of 2023 fed into a bearish sentiment and saw the price lull to around €80.50.  However, natural gas prices rallied due to the geopolitical tension in the Middle East and reports that a Baltic gas pipeline leak may have been sabotaged. This saw EUA futures reaching its month's high of €85.95 for the Dec23 EUAs.

The second half of the month saw the prices tumble, reaching a 5-month low as bearish fundamentals such as strong renewable output and low EUA demand from power and industry sectors took hold and outweighed the influence of the skittish energy markets, with Dec-23 EUA closing off the month at €79.05.

Voluntary carbon market

The international voluntary carbon market started the month on strong footing with a lively start on both the futures and OTC markets.

In the first week of the month, the nature-based CBL N-GEO contract saw over 3 million tCO2 transact in addition to 1.7 million tonnes and 1 million tonnes trading on the C-GEO and GEO futures respectively.

Prices in the market do remain weak and the market continues to be rumbled by integrity questions.

However, a positive trend appears to be emerging in response to these issues, particularly in the REDD sector. Buyers here seek well-established projects which are perceived as high quality and (due to current market sentiment) can often be purchased at historically lower prices, particularly for slightly earlier vintages (such as v2016 and v2017).

Overall, the market still seems to be on hold slightly as it awaits incoming instruments to help tackle ongoing integrity concerns. These instruments include:

  • the first Integrity Council for the Voluntary Carbon Markets (ICVCM) labelled credits, now expected in Q1 2024,
  • the Voluntary Carbon Markets Integrity Initiative's (VCMI) additional guidanceto complement its (already released) 'Claims Code of Practice',
  • and additional clarification around crediting carbon projects under Article 6 of the Paris Agreement, an expected outcome of the COP28 climate talks.

In other voluntary carbon market developments:

  • VCU REDD+ contract' OTC volumes continued to improve while the market displayed fragmentation as buyers have become more focused on the quality of specific projects, not just the methodology type.
    Notable trades included VCS674 Rimba Raya project in Indonesia vintage 2017 which transacted at US$7.10/tCO2e for 50,000 tonnes and VCS934 Mai Ndombe REDD+ project in the DRC vintage 2018 that traded at US$1.70/tCO2e for 100,000 tonnes.
  • The value of VCU Community Credits has decreased this month as the combination of questions regarding their effectiveness and a market preference towards nature-based solutions has seen demand decline. In the OTC market, 50,000 t of vintage 2021 Gold Standard Nigerian clean cookstoves (GS7312) traded at US$5/tCO2e mid-month.
  • Renewable credits saw less action across October.  CME GEO traded at lower levels with Dec-23 at US$0.53, Dec-24 at US$0.54 and Dec-25 at US$0.61. The VCS2001 K.R One’ wind project in Thailand vintage 2020 traded at US$2.40/tCO2e for around 30,000 t at the end of the month.
  • VCU Afforestation, Reforestation, Revegetation credits traded at the end of the month with China ARR vintage 2020 credits transacting at $7.50/tCO2e in 20,000 t.

Other developments

  • On the 1st of October the European Union launched the first phase of its Carbon Border Adjustment Mechanism. The tariff on carbon-intensive imports is designed to level the playing field between European importers and manufacturers. It operates by placing a carbon charge on imports to the levels imposed on local producers, with adjustments made based on mandatory carbon prices in exporting countries.
    Under this initial phase, EU importers will have to report the greenhouse gas emissions embedded during the production of imported iron and steel, aluminium, cement, electricity, fertilisers and hydrogen. From 2026, importers will need to purchase certificates to cover these emission. Learn more here.
  • The Singapore government released a set of eligibility criteria to guide businesses wanting to use international carbon credits to offset their taxable emissions. The criteria are aligned with the Paris Agreement Article 6 and are designed to help ensure high environmental integrity of the investment being made. The move is an extension of the existing International Carbon Credit (ICC) Framework, introduced in November 2022.  Learn more here.
  • Gold Standard is the first major standard to submit an application for program-level approval under the Integrity Council for the Voluntary Carbon Market (ICVCM) Core Carbon Principles (CCP) framework. The standard said it will decide which methodologies it will submit to ICVCM, once the credit-level approach is further defined. Learn more here.
  • The Voluntary Carbon Markets Integrity Initiative (VCMI) has published an updated timeline for the release of additional guidance under its Claims Code of Practice. This additional detail is expected on the 28th of November and is designed to help facilitate and expand the implementation of the code. VCMI have has also announced an Early Adopters Program, an initiative to highlight and support a select group of climate leaders that are among the first to make a VCMI claim. Learn more here.
  • A new study by Ecosystem Marketplace found that companies that participate in the voluntary carbon market are progressing further in their fight against climate change than organisations that do not buy carbon credits. This investment in carbon credits is helping to directly fund climate repair through carbon removal or avoidance projects. With the organisations that make the investment also more likely to be making internal and value chain process improvements and other emissions reduction initiatives. The report analysed voluntary carbon market transaction and corporate climate disclosures by 7,415 organisations and found that carbon credits represent a very small percentage of the overall action, at an average of just over 2% of total emissions. 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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