May 2024 VCM: New Developments & Trends
From redesigning products to embracing renewable energy and implementing circular business models, companies are undertaking multifaceted approaches to reduce their carbon footprint. Let's delve into some leading strategies being employed by corporations worldwide.
The voluntary carbon market (VCM) witnessed significant developments and emerging trends in May 2024. These updates, encompassing shifts in buyer behavior, notable trades, and international agreements, reflect the evolving landscape of carbon markets and their future prospects.
Early Summer Trends in the Voluntary Carbon Market
May 2024 saw an early onset of the summer slowdown in the VCM, characterized by thin liquidity and sideways pricing. Despite this, pockets of high-priced trades for nature-based credits and growing interest in Article 6-eligible units provided a glimmer of optimism.
A notable transaction involved approximately half a million reforestation credits from a project in Kenya, marketed for pre-purchase as 'eligible under Article 6.4'. The UNFCCC has yet to determine which CDM projects will transition to Article 6.4, but there is hope for significant progress before COP29 in Baku this November. Verra plans to issue a new batch of tradable sovereign credits, known as Internationally Transferred Mitigation Outcomes (ITMOs), by the end of the year.
In addition, the marketplace Emsurge, in collaboration with the Qatar-based Climate Action Center for Excellence (CACE), is planning a series of ITMO auctions later this year, with the first auction slated for September. The anticipation of high-priced ITMOs has overshadowed much of the voluntary sector, though some projects continue to command double-digit prices.
Market Dynamics and Pricing Shifts
Xpansiv reported a significant trade of CAR-certified nature credits, which drove the 20-day moving average of recent-vintage AFOLU credits to $12.05, marking a 125% week-over-week increase. Conversely, the energy sector price dropped to $0.76, driven by a substantial volume of Asian renewable credits.
Other notable trades included:
1) V19 Katingan REDD credits at $6.00
2) ACR 556 industrial process credits at $2.85
3) V20 Indian solar credits at $1.25
Despite these activities, the overall market experienced a decline in retirement levels, with 828,000 credits retired from major standard bodies between May 19-25, a decrease from the year's average.
Reducing Supply Chain Emissions
The food industry holds significant leverage over supply chain emissions, particularly Scope 3 emissions, which include all indirect emissions that occur in a company’s value chain. Regenerative agriculture offers a viable solution to reduce these emissions. By promoting sustainable practices across the supply chain, companies can decrease their overall carbon footprint and contribute to global climate goals. This not only benefits the environment but also enhances the sustainability and credibility of the food industry.
International Agreements and Article 6 Developments
In a significant move, Ghana struck deals with Singapore and Sweden to trade sovereign carbon credits under Article 6 of the Paris Agreement. These agreements enable Ghana to generate ITMOs that can be used by Singapore to offset up to 5% of taxable emissions for local carbon tax-liable companies, and by Sweden to meet its national carbon neutrality goals.
Singapore's carbon tax has increased from S$5 per tonne in 2023 to S$25 ($18.5) in 2024 and 2025, with further increases expected by 2030. The agreements also include provisions for climate adaptation contributions and ensure an overall mitigation of global emissions.
These developments highlight Ghana's pioneering role in Paris-era emissions trade, following its first ITMO deal with Switzerland last November.
Emerging Trends and Future Prospects
Several other notable developments in the VCM include:
1) The US unveiling comprehensive guidelines for carbon markets, emphasizing high-integrity carbon offsets.
2) The Bahamas aiming to monetize its seagrass and mangrove carbon sinks, potentially earning $900 million annually.
3) Gold Standard's public consultation on a new methodology for reducing methane emissions from combustion engines.
4) ClimeCo and Tricon Energy's Supplier Incentive Program to enhance sustainability in the chemical value chain.
5) Carbon RX's partnership with DT Master Carbon to market regenerative agriculture credits in Europe.
These initiatives reflect a growing focus on integrity, sustainability, and transparency in carbon markets. As the market navigates these changes, the demand for high-quality credits with co-benefits is likely to increase, driving the sector towards more sustainable and credible growth.
Conclusion
May 2024 has been a dynamic month for the VCM, marked by significant trades, international agreements, and emerging trends. As the market continues to evolve, achieving robust standards and regulatory oversight will be crucial for sustaining growth and restoring confidence among buyers and stakeholders. The focus on high-integrity projects and innovative methodologies underscores the market's potential to drive meaningful climate action and support global decarbonization efforts.
