Carbon Market Round Up: May 2023

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

Voluntary Market Updates

JPMorgan commits $200 million to carbon removal projects⁽¹⁾

JPMorgan Chase & Co. announced agreements to purchase up to 800,000tCO2e of carbon removal credits as part of its sustainability efforts, marking one of the largest commitments to carbon removal credits to date. Including a 9-year agreement with a leader in CO2 removal through direct air capture, delivering 25,000tCO2e over the contract term and a 5-year agreement to purchase bio-oil removal credits, delivering 28,585tCO2e over the contract term.

Mercuria to enter into transaction with Brazilian state to purchase 250mm REDD+ credits⁽²⁾

Mercuria announced its intent to sign a 10-year agreement to purchase up to 250mm REDD+ credits from the Brazilian state of Tocantins. In October, the Brazilian state said they valued the credits at over US$1.92bn.

Verra announces it will launch credit labels⁽³⁾

Verra announced that they would proceed with launching labels identifying removal and reduction credits. "Labels meet the increasing demand in the voluntary market and… highlight specific attributes while fungibility across all VCUs is maintained," Verra stated in its announcement. Verra also announced it will implement an Article 6 label, but did not provide details on how this will correspond with the attribute labels proposed by the Integrity Council for the Voluntary Carbon Market ("ICVCM") in the March 2023 Release. Further, Verra indicated it will not proceed with labels based on sustainable development, however, quantified positive sustainable development goal impact is one of the two other Core Carbon Principle attributes expected to be implemented by the ICVCM this year, along with the share of proceeds for adaptation.

World Bank Report: State and Trends of Carbon Pricing⁽⁴⁾

The World Bank released its annual report covering voluntary and compliance carbon market trends for 2022. The report noted that corporate voluntary offset demand remains robust and remains the primary driver of voluntary market growth, while an increasing number of compliance carbon programs are expected to be implemented in the coming years. The report also acknowledged that while macroeconomic conditions have challenged carbon offset markets across the board, new investors, financial products, technological platforms, and service providers are continuing to enter the market. A key trend identified was the rise of voluntary initiatives (such as the Voluntary Carbon Market Initiative and ICVCM) aimed at increasing supply and demand side integrity, with these efforts being accompanied by growing regulatory interest. International cooperation under Article 6 is continuing to gain momentum, with new bilateral agreements between countries and an issuance of offsets from the first projects previously authorized last year.

Compliance Market Updates

Zimbabwe announced new regulations for the carbon projects⁽⁵⁾

The Government of Zimbabwe declared carbon offset deals within the country "null and void", announcing they would take a 50% revenue cut of all future contracts. Additionally, foreign investors would be capped at taking home a maximum 30% of revenue, while local investors must receive at least 20%. The government later partially walked back the statement, providing existing developers two months to comply with the new rules. This is the latest example of the difficulties arising from Article 6 and corresponding adjustments as each country looks to tackle the issue.

WCI Q2 auction results⁽⁶⁾

The MayWCI auction sold all 56.1 million current vintage allowances on offer above the 2023 auction reserve price. This settlement marks the highest clearing price since the May 2022 auction. Additionally, the WCI advance auction sold nearly all of the 7.6mm V26 allowances on offer at a settlement price 11.3% above the clearing price from the Q1 sale.

NYMEX to relaunch EU allowance derivatives trading⁽⁷⁾

US-based commodities exchange operator NYMEX announced that it will relaunch trade in EU Allowance futures and options next month, with trading to take place on the CME's electronic Globex platform. A full suite of EUA contracts will be offered including all December contracts up to the end of 2030.

U.S. Environmental Protection Agency announced new carbon pollution standards⁽⁸⁾

The US EPA published a draft proposal to cut CO2 output from fossil-fuel fired electricity generators that may include emissions trading and carbon capture and storage. The proposed Clean Air Act limits are the U.S. governments third attempt at curbing emissions, with its predecessors the Obama Administration's Clean Power Plan and Trump Administration's Affordable Clean Energy struck down by courts at various points. The new standards proposed would cut carbon emissions from the existing coal fleet and new natural gas units by 617 million tonnes over the 2028 – 2042 period, along with separate abatement measures of up to 407 million tonnes for existing gas-fired plants. These standards would be heavily reliant upon technologies like CCS, low-GHG hydrogen co-firing, and natural gas co-firing. Environmental advocacy groups, academic institutions, and CCS trade groups responded positively to the EPA's proposal in statements following the announcement.

1. Reuters
2. Carbon Pulse
3. Verra – Press Release
4. World Bank
5. Reuters, Carbon Pulse
6. TD Securities, Bloomberg
7. Carbon Pulse
8. Carbon Pulse, U.S. Environmental Protection Agency

Historical Market Pricing

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