Carbon Market Round Up: March 2023

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

Integrity Council for Voluntary Carbon Market Releases Core Carbon Principles

The highly anticipated Part I of the Core Carbon Principles (CCPs) was released by the Integrity Council for Voluntary Carbon Markets (ICVCM) following a consultation period involving 350 organizations and comments from over 5000 stakeholders. The ICVCM is an independent governing body with the mission of fostering standardization and quality thresholds on voluntary credits.

Part I of the release included the ten CCPs covering three categories: emissions impact, sustainable development, and governance. The released Assessment Framework applies at the standard level, while a framework covering specific project types will be released later this year. The four main registries (Gold Standard, Verra, American Carbon Registry, and Climate Action Reserve) are already largely aligned with the framework, with only minor changes to project documentation and disclosures expected to be required. Market acceptance of the CCPs will be critical to addressing many of the key challenges currently facing the voluntary market and supporting its next phase of growth.

Canadian Federal Budget and Carbon Contracts for Difference¹

Canada's 2023 Budget announced the Federal government will consult on a carbon contract for difference (CCfD) programme to de-risk private sector decarbonization investments. This will be separate from the CCfD contracts proposed under the Canada Growth Fund (CGF), and the government will seek consultation on a "broad-based approach" for CCfDs. Through this effort, the Federal government will sign long-term CCfDs with project proponents at an agreed upon strike price, a backstop that would create a carbon price floor and help make projects that are reliant on carbon revenues bankable. Related to the CGF, it was also announced that the fund will be independently managed by PSP Investments and is expected to begin deploying capital in the first half of 2023.

While CCfDs are a welcome development, carbon price uncertainty remains a key pain point for both project proponents and investors. Given the life of most projects is expected to be 30+ years, this has resulted in financing challenges which CCfDs may not resolve.

$500 Million Investment in Nature-Based Solutions

A Swiss commodity trading firm announced plans to invest US$500 million to launch a newly formed investment vehicle focused exclusively on nature-based solutions. The investments will be aimed at providing tangible environmental, biodiversity and social benefits by investing capital in carbon sequestration, sustainable forest management, methane reductions in agriculture, avoided deforestation, reforestation, and REDD+ projects. The investments are expected to generate carbon credits and associated co-benefits.The nature-based solutions will be a crucial element necessary to meet the Paris Agreement goals.

French Multinational Announces Offtake Agreement

A French multinational utility company announced it has entered into a long-term offtake agreement to purchase up to 11.5 million carbon offsets sourced from cookstove projects in Cambodia and Bangladesh. This is the first major sale of offsets using Gold Standard's digital verification methodology. The deal was signed with an Australian project developer, that specializes in cookstove projects.Its patented stove product tracks usage on each device and aggregates data through a sim card.

Positive Results from Washington's First Compliance Auction²

Washington's Department of Ecology released results from the state's first allowance auction. This auction marked a critical milestone for Washington's cap-and-invest program, which has set among the most ambitious caps on greenhouse gas (GHG) emissions of any state to date. The auction was 2.7x oversubscribed with over six million current vintage allowances being sold. Additionally, the auction settled at a price of US$48.50, well above the floor price set of US$22.20 and nearly 20% above the secondary market at the time.

The results signal long-term confidence in the program by covered entities and are an encouraging sign of the acceptance and maturation of compliance markets in the U.S. Over the next two years, Washington's auctions are expected to generate US$1.7B in revenue which will be invested in efforts to help the state meet its GHG reduction targets.

EU ETS Rebounds in the Wake of the U.S. Banking Crisis³

In response to recent global economic stress, markets fell quickly from a Dec. '23 settle price of €99.80/tCO2e to a low of €87.07/tCO2e. Prices rallied several euros at month end when the European Commission announced plans to begin the sale of EUAs under the REPowerEU initiative in July 2023.

RGGI Begins Programme Review⁴

The first program review meeting for the RGGI market took place and posed potentially bullish changes to the market. Topics included tightening supply, raising the soft price floor and cap on the market, and extending the program through to 2040. Somewhat surprisingly, the presentation also included the potential for emissions reductions to zero by 2040. Whilst this is an unlikely case; it shows the breadth of topics that are on the table for consideration.

The U.S. Environmental Protection Agency finalized its "Good Neighbor Plan" which looks to further reduce ozone-forming emissions of nitrogen oxides ("NOx") from power plants. This plan will reduce emissions from 2023 through 2029 across a wide range of U.S. states and could potentially limit emissions from some of the oldest and highest emitting power plant facilities in RGGI states.

1. Department of Finance Canada, Carbon Pulse
2. Carbon Pulse, Bloomberg
3. TD Securities, Bloomberg
4. TD Securities, Bloomberg, U.S. Environmental Protection Agency

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