Global Environmental Markets Report - May 2024

Compliance carbon markets

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

‍

Australian Carbon Credit Units (ACCUs)

Generic spot ACCUs opened at A$34.00 and closed at A$33.25, while Human Induced Regeneration (HIR) spot ACCUs started at $34.50 and ended at $34.00.

Trading volumes decreased by 13% from April, with 2.191 million ACCUs reported on the secondary market. The HIR-ACCUs premium reestablished at A$0.50 early in the month and briefly converged mid-month due to low liquidity before returning to A$0.50, bolstered by a significant HIR-specific trade.

Market movements were potentially influenced by anticipated changes in various carbon credit methodologies, including updates to the Integrated Farm Land Management, Environmental Plantings, and Savanna Fire Management methods, creating a sense of uncertainty.

Derivative trading grew, accounting for 22.8% of volumes, reflecting market maturation and diversified participation. Notable trades included De24 $30 ACCU Put options and Mar25 $29 ACCU Put options.

Participants monitored potential Carbon Abatement Contract (CAC) exits, expected to impact market volumes. Generic ACCUs made up 73.5% of the market, with 1.611 million units traded, including 840,000 with the NO AD tag. HIR ACCUs comprised 26.5% of the market, with a 12.3% increase in market share despite a 1.5% decrease in volume from April.

Issuance of ACCUs surged by 115.5% from April, with 1,256,253 units issued. The Clean Energy Regulator (CER) projects around 20 million ACCUs for 2024, up from 17.2 million in 2023.

Key issuances included 78,500 ACCUs delivered under government contracts, primarily from GreenCollar's Tripodi Native Forest project, and significant shares to Terra Carbon and Kimbriki Environmental Enterprises projects.

‍

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

‍

Learn more about our ACCU Market Forecast Report, a method-specific ACCU market supply, demand and price forecast

‍

New Zealand Units (NZUs)

The NZU price was initially stable across the first half of May, opening at NZ$55.50 and trading in a tight range to NZ$54.50. This stability was then unpinned, with prices dropping sharply on the release of the government’s latest ETS consultation which examines options to adjust price settings, in response to the Climate Change Commission’s advice.

The proposed options included scope to lower the auction price floor further, exacerbating market sentiment that the government’s recent involvement is undermining stability.

As a result, the price proceeded to fall and reached NZ$46.00 by the 20th then, following a brief day of support which saw the price touch NZ$49.00 on the 21st, the price hit a low of NZ$44.63 on the 27th May.

The price then enjoyed a rally to end the month, closing atNZ$50.00, 12% higher than its $44.63 low. This is may have been driven by a reaction to the coalition’s latest budget which some market participants thought lacked in the way of new funding for climate initiatives.

‍

European Union Allowances (EUAs)

The EUA prices climbed for a second month in a row, with the benchmark Dec24 contract opening at €67.82.

The EUA market experienced notable price fluctuations driven by various factors across the month, with a rapid jump to a €72.51 settlement on 2nd May, influenced by speculative traders cutting back their short positions after Commitment of Traders data revealed a reduction in overall pessimistic bets by investment funds.

Following a brief decline to €69.46 on May 15, prices experienced a significant surge, reaching €76.25 on May 21. This four-month high was supported by early profit-taking, bullish gas prices, and the breach of key resistance levels. Factors such as auction supply interruptions and changes in renewable energy generation also played a role in the market dynamics.

The month concluded with prices at €74.10, indicating a strong performance and overall increasing positive sentiment. Additionally, EUAs continued to mirror the trajectory of gas prices, as rising natural gas prices contributed to the upward movement of the European Carbon price.

Voluntary carbon market (VCM)

Prices in the voluntary carbon market were largely stable in May but trading volumes continued to be muted and liquidity thin, with the market's directionality influenced by contending variables.

The temporary suspension of the registry account of the Rimba Raya project by Verra caused concern in the market, having been previously perceived as one of the most high-integrity REDD+ projects on offer. However, an uptick in engagement in Article 6 eligible units served to counterbalance the sense of unease caused by the suspension.

Both issuance and retirement levels in the VCM continue to illustrate its durability and are evidence of developing participation. Retirements reached 5,360,339 in May between the VERRA and GS schemes, the strong figures witnessed at the start of the year gradually diminishing but still up in comparison to volumes from the previous year.

The start of the month saw the IC-VCM approve Verra and Architecture for REDD+ Transactions (ART) carbon crediting programs as meeting its Core Carbon Principles (CCPs), in addition to the already-approved American Carbon Registry (ACR), Gold Standard (GS) and Climate Action Reserve (CAR) programs. However, issuance of the CCP stamps on a methodology-based level has been delayed until June, following complexities around the assessment of certain credits, leaving the market to its prolonged state of anticipation.

‍

Other highlights include:

• Buyer preference towards nature-based projects continues, however with the most recent spate of integrity concerns in relation to Rimba Raya, trading has been narrowed to a few specific REDD+ projects. As a result, the market experienced a pick-up in interest in Improved Forest Management (IFM) credits, with notable trades including CAR Mexico IFM vintage 2021-2022 that traded at US$11.00 in 100,000mt.
  ‍
• Interest in renewable credits remains relatively strong, but prices have softened slightly in May. A transaction for GS Indian Wind vintage 2020 credits was heard in 50,000 mt at US$1.50 at the start of the month and multiple VCS transactions were seen in smaller clips across the month including VCS 1844 Indian Solar vintage 2020 credits at US$0.96 in 14,000 at the end of the month.
  ‍
• The clean cookstove market has also experienced a softening of prices this month, as the concern that there may be an oversupply due to inaccurate baseline calculations looms. GS Ugandan vintage 2022 cookstoves traded at the end of the month at US$6.00 for 5,000t.

Biodiversity markets

Global biodiversity markets are taking a bit more shape this month with a surge in initiatives to provide more clarity around these this multi-fungible credits.

Early in the month, Bloomberg released data indicating that an estimated 55% of our global GDP is linked to nature. This means that approximately US$58 trillion is at stake if we don’t accelerate our actions in saving nature.

Towards the end of the month, we saw several developments in efforts to increase investor confidence. These were mostly in the form of improvements in existing market taxonomies and methodologies by standard and governing bodies.

‍

International nature and biodiversity markets highlights:

‍

Update on reporting standards and governing bodies

• Biodiversity Credit Alliance released a paper that defines what constitutes as a biodiversity credit, or a a unit of positive biodiversity outcome that is measurable and evident, durable, and additional. The paper explains each key factor of a biodiversity credit and how to test its integrity.
  ‍
• Verra announced developments to its nature framework methodology under the SD VISta accreditation program. It is due to be finalised by the end of this year.  
  ‍
• Climate mitigation and nature positive activities can sometimes contradict each other’s objectives. In response to this risk, Community Power Agency in Australia released a new guide on how solar farms can improve biodiversity.
  ‍
• The High Integrity Forest (HIFOR) investment initiative released a new methodology that issues units as a bundle of biodiversity and climate benefits, each for 1 hectare of a well-conserved and high-integrity tropical forest. However, it does not guarantee a biodiversity uplift. Hence, it can only be used as a contribution credit, not an offset.
  ‍
• Several new group initiatives were launched this month, such as A-Track, The Frontrunners Coalition, Business for Nature, Nature Tech Alliance, Nature Positive Initiative, and Japan’s Business Initiative for Biodiversity (JBIB) – which was formed in 2008 with 14 members and currently stands with 39 members. Each of these initiatives share the same purpose of providing clarity towards nature market and increasing global investor confidence to close the funding gap in nature.

European Union (EU)‍

• A national park project has entered UK’s Biodiversity Net Gain scheme, South Downs National Park. This project is the first of its kind in the scheme as most other current supply participants are agriculture industry proponents. It is hoped that the introduction of this new project will increase liquidity in the existing market.
  ‍
• The EU Commission released a survey on mid-May to understand the demand for EU biodiversity credits in relation to the region’s existing carbon market. The executive body is currently evaluating methods to reach their 30-by-30 nature positive goal.
  ‍
• In a separate announcement, the EU Commission released a study on integrating the value of nature towards economic policy assessment. The model being explored is similar to the GDP, with contributions from nature being captured as a Gross Ecosystem Product (GEP).
  ‍
• 3Bee, a project developer from Italy, is pilot testing over 150 monitoring initiatives across other EU countries to prepare for the EU voluntary biodiversity market in 2025.
  ‍
• A 20,000 biodiversity credit transaction was recorded in Germany for a beech forest conservation project. This contribution will be used by the buyer to meet the requirements of the EU Corporate Sustainability Reporting Directive. Price was not disclosed.

United States and China

• The Terrasos platform listed an additional 10,000 Terrasos biodiversity credits (tebu credits). The price per credit is currently around US$25.
  ‍
• Conservation International released a public statement on its view on the use of biodiversity credits. As a not-for-profit global nature conversation organisation, CI is a strong advocate for global nature, and  supports statement, the organisation made it clear that it acknowledges the role of nature credit markets to close the gap in nature finance, but that it will only engage with credits that are of the highest integrity, and only when the principles of mitigation hierarchy have been applied.
  ‍
• Pepsi Co and Home Depot, both launched surveys to understand shareholder views on publishing a nature disclosure report. An astonishingly low support was shown from both groups: 72% and 85% of shareholders in both companies respectively, voted against having a nature disclosure report.
  ‍
• Meanwhile in China, Mengniu became the first dairy company to submit a TNFD report.

‍

Australian Nature Repair Market highlights

• This month, the Australian government released the Federal Budget for 2024/2025. While significant investment has been allocated for other climate priorities, for every $100 spent by the government for all economic priorities, only 10c is being allocated towards nature.
  ‍
• The state of NSW and the Department of Climate Change, Energy, the Environment and Water (DCCEEW) released their 2024 Biodiversity Outlook Report. The report presented several dire facts around Australia’s biodiversity future. The likelihood of survival among existing threatened species over the next 100 years has declined since the report was first published in 2020. Ecosystem diversity has declined by 4% from what has been kept as almost a constant figure in the previous decade.
  ‍
• Nature-related budget allocation needs to increase to $1 for every $100 spent by the government. This includes funds to support the development of the Nature Repair Market. It was announced at the Carbon Farming Industry Forum that this market scheme will launch in early 2025, starting with either one of the base case methodologies – a broad-based restoration method or a permanent protection method.

‍

Australian Biodiversity Credits Public Pricing Benchmark

• Total volume of biodiversity credits traded increased in May by 45% compared to April.
  ‍
• Almost 77% of these credits were transferred and not retired. This indicates a strong demand to hold their value.
  ‍
• More than 60% of these credits were ecosystem credits.
  ‍
• There were no trades on 15 May, when the treasurer announced the budget. However, starting the following day towards the end of the month, number of credits transacted increased by 40% indicating a positive response from the market.
  ‍
• Average prices fell by 32% compared to April, however maximum price traded increased by $1,000 to $35,000 per credit, slightly far from the all-time high of $37,400 in March.
  ‍
• Overall, we are seeing a positive development in activity as proponents wait for the opening of Australia’s Nature Repair Market next year.

‍

‍

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

Other environmental market developments

‍

• The Article 6.4 mechanism Supervisory Body has agreed on an appeals and grievance procedure for people and communities affected by activities under the mechanism.
  
  "With the introduction of the Appeals and Grievances Procedure, we're establishing new avenues to empower vulnerable communities and individuals, ensuring their voices are heard and their rights are upheld," said Maria AlJishi, chair of the Supervisory Body.
  
  The procedure has come into immediate effect and marks a significant milestone in the operationalisation of the Paris Agreement Crediting Mechanism. Learn more here

• The Science Based Targets initiative (SBTi) has shared more detail behind its plans to revise the Corporate Net Zero Standard. The organisation released the Terms of Reference of the revision which include the objectives, scope, deliverables, provisional timeline and opportunities for engagement during the process.
  
  The four main goals of the review are to: 1) align with the latest scientific thinking; 2) address challenges around Scope 3 targets; 3) integrate continuous improvement; 4) improve structure and interoperability.
  
  As part of the process, SBTi is also assessing the effectiveness of Environmental Attribute Certificates (EACs), such as carbon credits, in corporate climate targets. It will incorporate the findings from last year’s open call for evidence into its findings.
  
  In-depth updates on the above are expected in July with a draft update to the standard expected in Q4 2024.
  
  Interested parties are invited to provide feedback throughout the process. Learn more here

• The US government issued official guidelines to help organisation – both buyers and sellers - make informed decisions when participating in the Voluntary Carbon Market.
  
  The White House released a Joint Statement of Policy and new Principles for Responsible Participation in Voluntary Carbon Markets.
  
  "With these high standards in place, corporate buyers and others will be able to channel significant, necessary financial resources to combat climate change through VCMs," the White House statement said. Learn more

‍

‍

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 to explore how we can help.

‍