Global Environmental Markets Report - February 2024

Compliance carbon markets

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

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Australian Carbon Credit Units (ACCUs)

Generic spot ACCUs opened the month sideways at A$35.00 and steadily made a 2% climb to a close of A$35.70 in February. Meanwhile, Human-Induced Generation (HIR) spot ACCUs declined, starting at A$37.75 and ending the month at A$37.25, thereby reducing the premium of HIR over Generic ACCUs from circa A$2.50 from the previous month to circa A$1.25.

The secondary market saw reported volumes double this month to a total of 2.139 million units. An increase in derivative trades contributed to this figure, with 325k of options and 125k of forwards transacting in February.

The Clean Energy Regulator (CER) issued over 1.241 million ACCUs in February, a 220,000 rise from the previous month’s total of 1.125 million units. The volume of ACCUs issued under the CER is now over 141.685 million units.

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For a comprehensive update on the ACCU market, read our February '24 ACCU Monthly Market Report here.

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New Zealand Units (NZUs)

The sharp run up in NZU prices across the final week of January was ultimately short lived. Opening at NZ$73.70, the NZU spot price moved in largely one way traffic lower across February, closing at NZ$66.75.

The downward movement could reflect general market angst including uncertainty regarding rumoured adjustments to the confidential reserve price settings by the government ahead of the March auction.

This coupled with broader uncertainty around government policy, direction and overall lack of climate urgency, may mean compliance buyers who have managed to accumulate adequate reserves of units may lack immediate incentive to engage in the market. A ‘wait and see’ approach may see the market resume it’s rangebound trading.

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European Union Allowances (EUAs)

The EUA price continued its downwards trend in February, with EUAs expiring in Dec-2024 opening at €62.00/tCO2 and drawing to a close of €56.00/tCO2.

Forecasts of higher demand due to colder than expected temperatures across Europe caused the price to rise at the start of the month. Nonetheless, the anticipation of the European Commission's meeting regarding emission targets for 2040 had a bearish effect.

A further decline followed as the absence of a daily auction plus inconclusive weekly position data contributed to a lack of support in the market and allowed the sell-off to prevail, with prices dropping to ***€56.89/tCO2 by 13th February.

An apparent short covering then bumped the levels up slightly, in addition to reports that Germany plans to cancel surplus coal exit-related EUAs. However, the EUAs expiring in Dec-2024 slumped again as they tracked gas prices that saw a sharp drop and caused the month's low of €52.22/tCO2.

The month concluded on a more positive note though, as the EUAs made a slight recovery in the closing days with traders further covering short positions and the €55.00/tCO2 mark seemingly providing a steady support level in the market.

Voluntary carbon market (VCM)

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The Voluntary Carbon Market continues to make headway with retirement figures remaining strong and reaching 18.7 million tonnes over February, slightly down from January's figure of 20.9 million.

Strong retirement numbers have caused some spectators to scrutinize the quality of the credits being retired, with many older vintage and cheaper credits being seen.

It’s important to note, however, that many of these credits have been retired without the corresponding offset being claimed. This could suggest that a large proportion of the current retirements may just be corporates clearing way ahead of incoming higher quality credits, including those created under new integrity frameworks.  

The sense that the market is on standby is still felt, as it awaits both the ICVCM's Core Carbon Principles (CCP) labelled and CORSIA-aligned credits. It is expected that around 905 million credits could potentially receive the CCP label, with the first batch expected to be assigned by the end of March.

However, it is difficult to predict the imminent impact these credits will have in the market, as the first surrender date of correspondingly adjusted (CA) credits that fulfill CORSIA's phase 1 criteria is not until 31st January 2028.

Moreover, despite CCP credits potentially reinstating confidence in the voluntary market, there is no compliance scheme that requires the CCP label yet, thereby no definite source of demand for those credits.

Nevertheless, demand remains generally elevated, feeding into slightly higher prices for the more sought-after credits. Although market stratification continues, buying interest seems to have spread across a range of methodologies, in contrast to a trend towards the end of last year whereby each month saw a different methodology such as Cookstoves or ARR being in favour.

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Other highlights include:

• In the REDD+ sector, prices remain extremely varied according to project-specific quality perceptions.
  
  The VCS 934 Mai Ndombe REDD+ project based out of the Democratic Republic of Congo has seen particularly low levels, with one notable trade heard for vintage 2018 in 100k at US$0.50 on 29th February. Meanwhile Verra reinstated VCS 562 and 612 Kasigau Corridors' active status, leading to the project being eligible for delivery again into CBL's N-GEO Standard spot contract. On the 14th Feb a transaction VCS 674 Rimba Raya, Indonesia v2018 was heard at US$7.50/tCO2e for 14,000t.

• The Household Devices sector have continued to fetch steady interest and in the Cookstoves sector there has been increased focus on the individual project's fNRB (fraction of non-renewable biomass) figures in an attempt to combat additionality concerns. A transaction for recent vintage VCS Kenyan Cookstoves was heard trading on the 26th Feb at US$7/tCO2e.
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• Strong demand has been seen for Renewable projects in February, notable trades mid-month include VCS 1733 Nouakchott 30MW Wind Project, Mauritania v2020 at US$5.40 in 30,000t and VCS 1356 Jiangsu Dongtai Phase II Wind Project, China v2017 at US$0.60 in 50,000t.

Biodiversity markets

February has seen a spike in activity around biodiversity markets globally.

On the whole, investors are not showing fear over uncertainty in policies and appear to be focused on long term demand. We are seeing more projects being developed across developing countries by investors whose headquarters are in countries with nature impact reporting regulations already/ about to be in place.

Large demand movements from corporates appear to be helping create the push for local governments to establish a compliance-based biodiversity credit market.

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Biodiversity and nature markets are a quicky evolving space. The CORE Markets team has released an introductory guide on the topic. Learn more here

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Biodiversity markets across the globe:

Reporting standards update

• The Taskforce on Nature-related Financial Disclosure (TNFD) made attempts to improve data use integrity by calling out financial institutions who are shopping for supplementary data from third-parties to complete their reporting assumptions. TNFD suggests that they only use the approved list of 150 data providers from TNFD’s Data Catalyst program.
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• TNFD is also opening market consultations for financial institutions and other eight sectors: aquaculture, pharmaceutical, chemical, electrical utilities, food and agriculture, forestry, metals and mining, and oil and gas, closing March 29.
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• S&P Dow Jones launched 2 biodiversity indices: S&P 500 Biodiversity Index and S&P Global LargeMidCap Biodiversity Index. The indices include companies who deliver positive impacts towards nature. The index assessment indicates that around 85% of the world largest companies have a significant dependency on nature and biodiversity. It is hoped that the new indices will help to redirect investment activities and improve valuation transparency.

European Union

• The EU Parliament adopted the Nature Restoration Law which promises to restore 20% of EU’s land and sea by 2030. This is 10% short of the original 30 by 30 pledge , but the law includes several specific ambitions to focus on habitats in poor conditions. The mandate will change the future landscape of EU as it includes 15,000 ha of urban green spaces to be built, 25,000 km of European rivers to be restored, 3 billion trees planted to recover degraded land and more targets.
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• Ireland announced that it will follow the footsteps of the UK in implementing biodiversity net gain scheme for new building projects. Current ruling puts a price of about US$6,500/ ha for private woodland restoration.
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• UK based fund, Gresham House Fund, targets US$380 million to buy biodiversity credits generating land. The funds will be invested to habitat banks and expected to grow the land from 500 ha to 8000 ha. That is about US$47,500 - US$760,000/ ha. Current UK biodiversity credits range from approximately US$53,000 - US$830,000/ credit. (note that each hectare is not equivalent to one credit, each credit represents the cost to create, maintain/ monitor the habitat).
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• Global UK based project developer, RePlanet, estimates their five current biodiversity credit projects can generate US$10 million each or even more with the help of blockchain systems.
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• Global German based project developer, Sylva, is starting a new biodiversity credit project spanning over 3 countries in Africa called ‘The Great Plains Foundation’. A total of 435,000 ha of multiple sites across Botswana, Zimbabwe and Kenya will be developed into a rehabilitation project to conserve keystone species such as Elephants and Rhinos. Credits will be accredited through either Plan Vivo or Verra.

APAC

• Japan announced a new incentive for nature investors. Financial contributions to Other Effective area-based Conservation Measures (OECM) scheme are eligible to earn biodiversity support certificates. The announcement was received with enthusiasm as two of Japan’s project developers decided to begin conducting Monitoring, Reporting and Verification (MRV) studies on seaweed projects.
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• Three major stock exchanges in China listing more than 5000 companies, with a combined market cap of over US$11 trillion, have jointly announced a mandatory reporting requirement for large-cap and dual-listers to disclose their sustainability, nature and climate related impact and improvement strategies.
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• Philippines’ first biodiversity project is underway, being developed by San Miguel Aerocity, an infrastructure company that will build and operate the New Manila Airport. The avoidance and reduction will happen during the airport’s construction period. The quantifying assessment will be based on UK Natural England’s methodology.

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Australian biodiversity credit market as of Feb 2024

• Australian carbon project developer, Carbon Neutral, is developing a new methodology for wildlife sanctuaries under the Nature Repair Market (NRM). The biodiversity credits will be generated on The Hughes Block, a 1,000 ha remnant vegetation block, part of the Yarra Yarra Biodiversity Corridor. The corridor is also part of a a carbon project under Gold Standard (GS3039) but the block in question is outside of the carbon crediting area. It is not yet decided  if the project will seek to join the NRM or generate independent credits like GreenCollar Group's NaturePlus credits.
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• Price wise, Australia has seen spikes in the one and only currently available public source of biodiversity credit pricing (the NSW scheme below). Highs in volume and average trade price seems to be in tandem with movements in ACCUs, although there is no correlation that can be proven between the two interlinked credits at this time.
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New South Wales Biodiversity Credits Market ‍

Throughout February, the market has saw some significant change in performance, overall, a positive jump in trade volume and valuation:

• Total trades: 13 (up by >0.5x);
  Species credits 3 (same as last month),
  Ecosystem credits 10 (up by >0.5x)

• Volume transferred: 3,146 (up by 3.6x);
  Species credits 2,510 – (up by >10x)
  Ecosystem credits 636 – (about the same as last month)

• Market price:
  - Total market value: A$7,454,027 (up by 7x)
  - Species credits: weighted price - $535; min-max range - $325 - $680 (down by 0.5x, this is the only downward moving component)
  - Ecosystem credits: weighted price - $9,610; min-max range - $4,045 - $32,691 (up by 4x)

Other environmental market developments

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• The Integrity Council for the Voluntary Carbon Market (ICVCM) announced a new milestone in the implementation of its Core Carbon Principles (CCP) project integrity framework.
  
  Over 100 active carbon credit methodologies have been grouped into 36 categories. Eligible methodologies are now undergoing one of three assessment types with first approvals dues in March of this year.
  
  In summary:
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  - 47% of carbon credits in the market, that raise complex issues, will be assessed by a multi-stakeholder working group
  - 8% of carbon credits will be assessed internally by the Integrity Council secretariat and members of its expert panel
  - 1% of carbon credits are considered unlikely to meet the new framework criteria and assessment of these will be completed at a later point in time
  - The remaining credits have either note been submitted for assessment (due to methodology updates for example, or have not been allocated a methodology.
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  Learn more here.
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• Bain & Company is the first organisation to make a Carbon Integrity Platinum Claim under the Voluntary Carbon Market Integrity Initiative’s (VCMI’s) Claims Code of Practice (Claims Code).
  
  The Platinum Claim is the highest Carbon Integrity Claim under the code. It requires the purchase and retirement of high-quality carbon credits equal to or greater than 100% of a company’s remaining remissions.
  
  It demonstrates that an organisation is making significant progress on its internal decarbonisation, as well as delivering finance to projects that are proven to reduce global emissions.
  
  The credits purchased must meet defined quality requirements. Allowed credits are either those with a Core Carbon Principles (CCP) label, or, until these become available, credits that can be demonstrated to meet all 10 CCPs. CORSIA eligible credits are also allowed at this time.
  
  Learn more here.
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• The Science-Based Targets initiative (SBTi) has introduced new guidelines around the role of carbon credits in supporting corporate climate action.
  
  The body published 2 reports which explore the beyond value chain mitigation (BVCM) approach in climate action, encouraging companies to extend their environmental sustainability efforts beyond their immediate operations.
  
  Acknowledging the urgency of the climate crisis, SBTi now recommends  that all companies take action to deliver beyond value chain mitigation as they transition to net zero.
  
  Many organisations have been waiting for SBTi to provide clear guidance on the role of carbon credits in science-aligned climate action. This development further aligns SBTi with other integrity initiatives, such as the VCMI’s Carbon Integrity claims.
  
  “Companies can now make a VCMI “Carbon Integrity” claim and get recognised for accelerating global net zero, by using high-quality carbon credits to go above and beyond science-aligned emissions cuts,” said Lydia Sheldrake, Director of Policy and Partnerships at VCMI.
  
  Learn more here.
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• Oxford University researchers have published updated guidelines on credible and net zero aligned carbon offsetting: Oxford Principles for Net Zero Aligned Carbon Offsetting (Revised 2024).
  
  The framework aims to guide businesses and governments in making meaningful contributions to combating climate change by aligning offset practices with scientifically backed, sustainable strategies.
  
  The 2024 update focuses on four main elements for credible net zero aligned offsetting:
  - Cut emissions, ensure the environmental integrity of credits used to achieve net zero, and regularly revise your offsetting strategy as best practice evolves.
  - Transition to carbon removal offsetting for any residual emissions by the global net zero target date.
  - Shift to removals with durable storage (low risk of reversal) to compensate any residual emissions by the net zero target date.
  - Support the development of innovative and integrated approaches to achieving net zero.
  
  Learn more here.

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Do you need help navigating the evolving market conditions?

The events outlined in this month’s update highlight the evolving nature of global carbon and environmental 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.