Carbon Market Round Up: July 2023

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

The TD Securities Insight

July was a productive month for establishing independent, high-integrity standards to fortify investor confidence in the voluntary carbon market. Corporations based in Japan and the U.K. secured funding to expand carbon market initiatives into the North American market. We also saw how carbon pricing mechanisms are influencing corporate valuations for one of Australia's largest greenhouse gas contributors.

Voluntary Market Updates

ICVCM Releases Part Two of the Core Carbon Principles⁽¹⁾

The Integrity Council for the Voluntary Carbon Market ("ICVCM") released Part II of the Core Carbon Principles ("CCPs"), a global threshold standard for high integrity carbon offsets. With this release, voluntary standards will be able to apply for CCP-eligibility which, if received, enables them to label offsets as CCP-Approved by the end of this year. This standardization effort is intended to help high-integrity offsets earn a premium in the voluntary carbon market.

Japanese corporations raise U$420M for North American Forestry Fund⁽²⁾

A joint effort of ten Japanese corporations launched a fund to manage North American forests and generate carbon offsets. The fund will buy and manage 130,000 hectares of forest and will be run by an American company that is an expert in U.S. forest funds management. The offsets will be generated as an Improved Forest Management project as the forests will increase carbon absorption, biodiversity and water resource conservation.

Carbon credit ratings and analytics company to expand into North America⁽³⁾

A London-based company closed a U$57M Series B funding round, alongside participation from new and existing investors. The successful new round in a tough funding environment follows a U$32M Series A in January 2022 and a U$5.8M seed in May 2021, bringing the ratings agency close to U$100M in total external funding. The proceeds will be used to fund expansion into the North American market, where they are opening an office in New York City to target U.S. financial services companies and the asset management industry.

Isometric raises U$25M to create a carbon removal registry⁽⁴⁾

Carbon removal registry and science platform, Isometric, has raised funding to continue building out their registry platform. The company launched their science platform in July aiming to build confidence in the market through publicly reporting data and verification results from its network of partners. The science platform currently features six protocols and is hoping to add more protocols within the coming weeks, providing a standardized format for potential buyers when it launches later this year. Isometric will charge buyers – not developers – a flat fee per offtake unrelated to the number of credits issued. Isometric's registry will look to address over-issuance concerns in the market, where offset registry models have been criticized for incentivizing project developers to maximize issuance.

U.S. CFTC Climate Risk United to release guidance for the voluntary carbon market⁽⁴⁾

The U.S. Commodity Futures Trading Commission ("CFTC") kicked off the second voluntary carbon markets convening in mid-July, initiating the event amid concerns over the integrity of the market and the need for enhanced regulations. A key issue raised is the apparent conflict of interest between the standards (Verra, Gold Standard, etc.) and project developers, as registries face accusations of setting low standards to ensure projects can meet them and sell offsets. CFTC Chairman Rostin Behnam noted that the convening marked the public launch of the CFTC's Climate Risk Unit drafting guidance for standards in the market, setting up the CFTC for further involvement in carbon markets.

Compliance Market Updates

WCI market reaches all-time highs as potential allowances budget cuts are expected⁽⁵⁾

The California Air Resources Board ("ARB") presented scenarios outlining possible changes to the cap-and-trade program to help it meet its emissions reduction goals. Notable in this were scenarios showing a rapid decline in the number of allowances available under the cap. Since the meeting, allowance prices have soared to record highs as compliance entities and traders were surprised by the potential magnitude of the supply cuts. Dec 2012 V23 CCA prices have climbed as high as $37.60 on ICE and rose 4.6% on the 27th alone. The ARB outlined three scenarios – including emission reductions of 40%, 48%, and 55% – to show how adjusting allowance supply through to 2030 could help the state meet its more ambitious 2022 Scoping Plan.If the ARB chose to pursue its most aggressive reduction scenario of 55%, a total of 390 million allowances would be removed from the 2025 – 2030 budget. ARB is expected to make a decision by 2024, with the changes taking effect from 2025.

Mining group makes U$800M write down on Australian alumina refineries due to Safeguard Mechanism⁽⁴⁾

One of the world's largest metals and mining corporations wrote down the value of two Australian alumina refineries to reflect the costs of buying Australian Carbon Credit Units ("ACCUs") under the government's Safeguard Mechanism which sets baselines for greenhouse gas emissions on facilities that emit more than 100,000tCO2e per year. The strengthened Safeguard Mechanism requires facilities to either cut emissions in line with a progressively falling baseline of 4.9% per year, or purchase ACCUs or Safeguard Mechanism Credits to make up the difference. This represents a key example of how carbon pricing mechanisms are beginning to have an impact on asset valuations and investment decisions, particularly in energy intensive industries and sectors

1. The Integrity Council for the Voluntary Carbon Market
2. Carbon Credits
3. TechCrunch
4. Carbon Pulse
5. California Air Resources Board, TD Securities, Carbon Pulse

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.