Global Carbon Markets Snapshot - September 2023

Compliance carbon markets

This month we cover key developments in the Australian, New Zealand and European carbon markets.

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Australian Carbon Credit Units (ACCUs)

With the market likely catching its breath from previous periods of volatility, September was a much less volatile month for the ACCU market. Also, thinner trading conditions saw 39.5% lower volumes for the month compared to August.

The ACCU spot price opened the month at A$29.50, $1.50 lower than the closing level for August, then recovered across the first week, regaining the A$31.00 level by the 8th of September.  

The price then remained largely stable, trading in a narrow band between A$30.50- A$31.50 before ultimately softening to A$30.35 to close September.

The HIR/Generic premium remained relatively stable across the month at circa A$4.00. However, volumes for HIR spot trades were significantly lower, at only 23% that of the generics contract volume.

September also saw the release of the Q2 Quarterly Carbon Market Report from the Clean Energy Regulator. The report included  the following updates on ACCU holdings:

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• ANREU holdings rose to 27.6 million ACCUs, an increase by 3.8 million
• Safeguard Mechanism entities' account holdings grew from 2.2 million to 3.1 million across the year to June 30th, implying they are slowly starting to accumulate ACCUs, though a sustained increase in demand is yet to be felt across the secondary market.

New Zealand Units (NZUs)

The upward momentum NZUs enjoyed across August initially maintained its trajectory for the first week of September, peaking at NZ$73.00 on the 8th spurred on by the third consecutive failed auction earlier in the week. However, by mid-month the momentum started to wane as traders began to take profits on earlier trades ahead of the NZ Government election looming in October. Prices softened quickly, to a low of NZ$64.00 by the 25th of September, recovering only slightly to close the month at NZ$66.05.

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European Union Allowances (EUAs)

The EUA price started the month by continuing its downward trend, largely affected by the European gas prices softening after the initial panic caused by the news of the Australian LNG strikes subsided. The EUA auction calendar switched from summer to winter mode, meaning an increase in issuance volumes, contributing to the abundant supply in the market and, when paired with the persistently sluggish industrial demand, the bearish fundamentals outweighed any bullish signals.

By the end of the first week of September, the European December 2023 carbon futures prices hit their lowest level in three months at €80.23. Sharp price increases were then seen in the penultimate week of the month as the quarterly options expiry date triggered some buying interest. Additionally, the Commitment of Traders report indicated the increase in investment funds' net short positioning, giving an impression that there may be some future demand in order to unwind these positions. On the back of this news the December contract soared to €84.56 on 22nd of September, before the weak fundamental factors took hold again, with the contract closing September at €81.67.

Voluntary carbon market

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Key market movements

• The international voluntary carbon markets experienced a pickup in market activity throughout the month, both in OTC and futures contract volumes. Prices remained subdued through the month.
  
  The prevailing sentiment remains marked by a sense of uncertainty, prompting many participants to place a heightened emphasis on project credibility. Decision-making processes are increasingly influenced by risk -based analysis frameworks. Demand was seen picking up in longer-term, primary market offtake agreements.
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  The market continues to expand, evolve and innovate, driven by the introduction of new methodologies, standards, reporting mechanisms, and ratings. New York Climate Week took place in September, offering a platform for discussions on these developments and the need to scale up global carbon markets as a key climate action.

• VCU REDD+ contracts saw a pickup in OTC traded volumes, however prices remained under pressure with the vast supply available. Notable trades included Indonesian REDD+ vintage 2018 at US$5.50 and vintage 2020 at US$6.15. CME N-GEO futures ended the month with Dec-23 at US$1.81, Dec-24 at US$2.08 and Dec-25 at US$2.37.
• VCU Community credits were well offered with African cookstove prices a touch over US$4.00 for 2020 vintage, a large transaction of 700,000t vintage 2021 Indian cookstoves was heard at U$4.25/t during the month.
• VCU Afforestation, Reforestation, Revegetation traded with Chinese ARR vintage 2019 agreed at US$7.90/t
• Renewable credits traded at lower levels across the month with the CME GEO futures closing the month with Dec-23 at US$0.76, Dec-24 at US$0.82, Dec-25 at US$0.95.

Other developments

• Australia permanently cancelled 700 million carryover Kyoto credits during September which was seen as long overdue. Under the Kyoto protocol developed counties were allowed to carry surplus credits when they reached more emissions reductions than their committed targets. Australia joins many other developed nations which have also cancelled their carryover credits, ensuring that they cannot be used by future governments
• Trove Research released a new study in September which estimates that global investment in carbon credit projects between 2012 and 2022 stands at US$36 billion. With around half of it being invested in the last three years and more than US$3 billion already committed. However, according to the research the current rate of investment is only one-third of the US$90 billion needed by 2030 under the agreed 1.5-degree target.
• Indonesia officially launched its carbon credit exchange on the 26th of September. The Indonesia Stock Exchange (IDX) commenced trading carbon credits as part of the country’s efforts to meet its emissions reduction targets. The market is managed by the Financial Services Authority and will initially cover 99 coal power plants, with projects from forestry, agriculture, waste, oil and gas, processing and marine industries also expected to participate.

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.