Carbon Market Round Up: June 2023

The Carbon Monthly Series provides a window into pricing movements of key compliance and voluntary markets and broader market trends.

Voluntary Market Updates

VCMI releases finalized Claims Code of Practice and joins forces with the ICVCM ⁽¹⁾

At the end of June, the Voluntary Carbon Market Initiative ("VCMI") released the finalized version of its Claims Code of Practice, providing companies a rulebook to follow when developing an offsetting strategy and making claims. The Claims Code was developed through a multi-stakeholder collaborative process and aims to establish a minimum quality baseline for corporate claims within the carbon market, complementing the supply side initiatives being driven by the Integrity Council for the Voluntary Carbon Market ("ICVCM"). The document helps to clarify the complex landscape of the market and provide guidance for the credible use of carbon offsets within a decarbonization strategy. The finalized Claims Code establishes three tiers of claims that corporates can make – Platinum, Gold, and Silver – each of which recognizes investment in eligible offsets to complement internal corporate emissions reductions to meet targets.

The ICVCM and VCMI issued a press release announcing their intention to coordinate efforts going forward on both the Claims Code of Practice and Core Carbon Principles. The two organizations plan to collaborate on the release of their respective standards and guidance throughout 2023 in order to establish an integrated market framework to define best practices for both the sourcing and use of carbon offsets and ensure quality, transparency, credibility, and accountability across the value chain.

The futures market for voluntary offsets rebounded off the back of the announcements from both the VCMI and ICVCM.

BCG signs one of the largest ever DAC carbon removal deals ⁽²⁾

Boston Consulting Group ("BCG") announced an agreement via press release with CarbonCapture for the purchase of 40,000 tCO2e direct air capture ("DAC") offsets over the next five years. The agreement comes with a commitment by BCG to provide management consulting services for CarbonCapture in support of strategic initiatives going forward. This announcement also comes after CarbonCapture announced "Project Bison" in September 2022, the world's largest carbon removal project that will be able to permanently remove and store five million tonnes of CO2 per year when operational in 2030. The purchased offsets will be utilized by BCG in order meet their previously stated goal of achieving carbon neutrality by 2030.

Gold Standard and GGGI launch innovative policy certification program ⁽³⁾

Gold Standard and GGGI announced a partnership to develop a policy certification scheme for governments that would enable country-to-country emissions trading in accordance with Article 6 of the Paris Agreement. The partnership between Gold Standard and GGGI will enable the certification and crediting of mitigation outcomes from policy approaches and allow eligible carbon offsets to be classified as Article 6 compliant Internationally Transferred Mitigation Outcomes ("ITMOs"). Countries would then be able to use the financing from the sale of ITMOs to implement new policies supporting decarbonization, while counting the emissions reductions towards their own Nationally Determined Contributions. Gold Standard plans to develop the new scheme throughout 2023, with a view to being ready for application in 2024.

Compliance Market Updates

U.S. commodities regulator seeks tips on carbon market misconduct ⁽⁴⁾

The U.S. Commodity Futures Trading Commission ("CFTC") announced it is looking for public assistance in monitoring instances of fraud and manipulation within the carbon market. Identified violations include, but are not limited to, manipulative and wash trading, 'ghost' offsets, double counting, fraudulent statements, and manipulation of tokenized carbon markets. The CFTC issued the alert to allow whistleblowers to become eligible for financial awards and certain protections by identifying Commodity Exchange Act violations in the carbon market.

Canadian Federal Government publishes draft of Improved Forest Management Protocol ⁽⁶⁾

The Government of Canada released an initial draft of its Improved Forest Management Protocol for public consultation. Currently, only provinces that do not already have a carbon pricing system that aligns with or exceeds the federal requirements are subject to the Greenhouse Gas Pollution Pricing Act and associated federal Output-based Pricing System, with federally recognized offsets representing an eligible compliance tool. Once finalized, this protocol will become the third recognized protocol under the federal government's Greenhouse Gas Offset Credit System. The deadline for comments on the draft is August 22, 2023.

Washington Auction continues to clear above expectations ⁽⁶⁾

The second auction for Washington's cap-and-invest programme was completed on May 31st with auction results announced on June 7th. The auction clearing price exceeded that of the first auction clearing price and remains well above the floor price. Over 8.5 million allowances were offered for sale with compliance entities purchasing 90% of supply. There were 54 auction participants in total, 14 of which were financial participants. The second auction also triggered a follow-on Allowance Price Containment Reserve ("APCR") auction given the clearing price exceeded the trigger price. At auction, the APCR allowances are split equally into two pricing tiers. Tier 1 allowances are sold first, and Tier 2 allowances are allocated once they run out. These allowances available at the reserve auction are still a part of the overall allowance budget set to keep Washington on track to meet its climate targets. Even though triggering the APCR means that some more allowances are made available at auction, these allowances were budgeted out ahead of time for this exact purpose and do not put Washington over its planned emissions budget.

1. VCMI – Claims Code of Practice, Press Release
2. BCG Press Release
3. Gold Standard Press Release
4. Commodity Futures Trading Commission Press Release
5. Environment and Climate Change Canada
6. cCarbon

Historical Market Pricing

ESG & Carbon Advisory

As part of TD Securities' ESG Solutions Group, the Carbon Advisory team provides comprehensive ESG and capital markets solutions for corporates and carbon market participants.

Carbon Markets Trading

TD Securities' Energy Trading platform provides solutions for compliance / voluntary carbon and environmental commodity markets.