Guardian article had a bearish price impact, 6.96% down on CBL’s NGO contract and 5.08% down on Platts CNC contract. Although criticism is not new, we expect market participants to remain cautious, weighing on prices and a probable shift towards projects such as afforestation/reforestation, blue carbon, household devices, and removals technologies.
The bearish trend of nature-based contracts is notable, but not as prominent after the article calling “carbon credits worthless” published by The Guardian on 20 January.
The Guardian, together with Die Zeit and SourceMaterial, held an investigation to analyze the true benefits that avoidance conservation projects have on the climate. According to the study, at least 90% of Verra’s rainforest carbon credits do not represent real emission reductions.
Verra, as well as other market players, responded to the criticism and questioned the methodology used by The Guardian. Several rating agencies, brokers, traders, and project developers publicly published their responses, acknowledging the importance of REDD+ projects in accelerating the low-carbon economy and agreeing on the necessity of improving MRV (measurement reporting and verification) processes. South Pole, one of the largest project developers and brokers, has announced that they will review their ongoing REDD+ projects.
The criticism seen in The Guardian’s publication towards conservation-type projects is nothing new. In September 2022, Context News, like many other journalists and researchers, published an article in which they contested the efficacy of the credits generated in forestry projects in Brazil. Despite the prolonged existence regarding the true impact of such projects, it only recently gained substantial traction because of the names of the journals that released the study.
As we recently noted in our analysis, companies are becoming increasingly concerned about becoming the target of criticism for buying offsets whose impact on addressing climate change is minimal.
The Platts nature-based CNC contracts closed on Thursday at USD 2.80/t, a 5.0% drop from last Thursday’s closing price of USD 2.95/t.
The CBL’s Dec-22 NGO contracts continued in their downward trend in price, seeing an even more dramatic drop in prices this week, closing at USD 3.61/t on Thursday (26 Jan), USD 0.27/t less (-6.96%) than last Thursday’s closing price.
The AirCarbon Exchange (ACX) contracts did not change on a week-on-week basis, although there is a large difference in prices between the contracts themselves, varying between USD 3.55/t and USD 15/t, according to the vintages and co-benefits of the projects.
While some exchange contracts seem to experience a drop, this is not very significant, taking into consideration that over the past year, all contracts had a consistent drop. Most liquid Dec-22 CBL N-GEO contracts dropped from USD 14.83/tCO2 at the start of 2022 to USD 4.12/tCO2 at the end of the year, a 72% drop. Nonetheless, regardless of price variations, the market experienced a decrease in the volume of contracts.
Players are likely to become more skeptical, and there will be fewer transactions and a declining trend in the market for contracts.
The demand for conservation offsets is expected to shift towards projects such as reforestation, blue carbon, removals, and other types of technology projects with social benefits, such as household devices, as these projects normally offer the co-benefits that companies that purchase REDD+ often seek.
Companies will not prioritize the purchase of offsets until other socioeconomic concerns are dealt with, much less while the voluntary market’s transparency and MRV issues are not adequately addressed. Meanwhile, other initiatives such as jurisdictional REDD+, which has baseline calculations by jurisdiction and not by project as “traditional” REDD+, tend to gain more space.
Veyt specialises in data, analysis, and insights for all significant low-carbon markets and renewable energy.
