Carbon Market Round Up: September 2023

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

Voluntary Market Updates

Large acquisition brings majority stake in Australian environmental markets investor and project developer⁽¹⁾

Based in Canada, one of the largest pension plans in the world reached a deal of U$385M to acquire a 49% stake in a leading environmental markets investor and project developer from Australia. The investor already owned 33% which it had purchased in 2021 for US$250M which will make it a majority owner once the deal closes.

The World's Largest Deployment of Direct Air Capture Technology⁽²⁾

A leading U.S. e-commerce company announced it has entered into a long-term offtake contract for direct air capture (DAC) carbon offsets as part of its climate pledge commitment to reach net-zero carbon emissions by 2040. The company is supporting the world's largest deployment of DAC technology by committing to purchase 250,000 metric tons of carbon removals over 10 years from a plant currently under construction in Ector County, Texas. When fully operational, it is expected to be the largest DAC facility in the world, capturing up to 500,000 tons of CO2 annually.

One of the Largest Permanent CO2 Removal Deals to Date⁽³⁾

A large American tech company has signed a long-term offtake contract to purchase up to 315,000 MtCO2 of removals over a ten-year period from a carbon dioxide removals (CDR) company that harnesses the natural properties of limestone to capture and sequester CO2 from the atmosphere. This transaction follows on the back of US$600M in funding from the US Department of Energy. CDR offsets purchased under this agreement will be generated at two new commercial deployments in the U.S. and will support the investor's carbon-negative goal.

Verra Releases Article 6 Label Guidance⁽⁴⁾

Verra released a guidance document detailing how Verified Carbon Units ("VCUs") may receive Article 6 labelling to indicate they have been authorized by host countries under Article 6 of the Paris Agreement. Commonly known as corresponding adjustments, implementation of these labels aligns the VCS with how signatory countries to the Paris Agreement are to account for their climate action. Release of this guidance provides further evidence of the voluntary carbon market preparing for the emergence of an Article 6 aligned market.

E.U.'s Carbon Removal Certification Bill Faces Delays in Parliament⁽⁵⁾

Negotiations over the E.U.'s framework for certifying carbon removals have come to a standstill amidst disagreements among policymakers over whether to label certain farming practices as carbon removals. If successfully implemented, the E.U.'s Carbon Removal Certification Framework bill would be the first legislation to enshrine into law what a carbon removal is. However, a delay would mean the current E.U. political mandate may not be able to turn the proposal into law in time before European elections campaigning kicks off. A legal definition of what constitutes a carbon removal could pave the way for inclusion in the E.U. Emissions Trading System (ETS) or the possibility of cross-border emissions trade between member states.

EU Plans to Ban 'Climate Neutral' Claims by 2026⁽⁶⁾

In efforts to stop consumer products greenwashing, or perceptions thereof, the E.U. will ban claims such as "climate neutral" or "eco" unless companies can prove their accuracy. Other phrases that could potentially be banned include "green", "energy efficient" and "biodegradable". The rules will also prohibit claims on carbon neutrality that are based solely on emissions offsetting as well as green labels that do not come from approved sustainability programs. The law, which still requires approval, is expected to come into force by 2026.

Compliance Market Updates

RGA Prices Reach New All-Time High⁽⁷⁾

RGGI Allowance (RGA) prices settled above the 2023 Cost Containment Reserve trigger price and set a new all-time high in the process. The Dec-23 V23 RGA contract hit $14.90 in a flurry of trading, surpassing the previous high of $14.74 set on June 14, 2022. On the same day, there were also high volumes of RGA allowances traded with some 200,000 contracts changing hands — roughly ten times the normal activity. Demand was spurred following the conclusion of 11 member states' latest Third Program Review meeting which discussed more stringent modelling scenarios for the scheme to reach zero emissions by either 2035 or 2040.

Market Volatility: WCAs Continue to Fall⁽⁸⁾

Washington Carbon Allowances (WCAs) prices dropped precipitously during September. Volatility was initially triggered by the Washington Department of Ecology's announcement that it would make five million Allowance Price Containment Reserve (APCR) permits available at the November 8th auction at the $51.90 Tier 1 trigger price. This took market participants by surprise as it represented a near quintupling of the volume made available during the August APCR auction which sold more than 1.05MM permits equally split between the Tier 1 and Tier 2 price of $66.68. This sudden program change has temporarily undermined trust in the program and served as a reminder that stroke-of-the-pen risks remain present in the compliance markets.

1. Ontario Teachers' Pension Plan
2. Amazon
3. Heirloom Carbon Technologies
4. Verra
5. Carbon Pulse
6. Carbon Herald
7. Carbon Pulse
8. Carbon Pulse

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