Commodities 2024: Price slump in 2023 clouds outlook for voluntary carbon market

Sharp declines in carbon credit prices in 2023 have clouded the outlook for the voluntary carbon market, or VCM, in 2024, with market participants pessimistic about a swift recovery after questions arose regarding the integrity and credibility of nature-based REDD+ credits issued by Verra.

Verra is a major standard for certifying carbon credits to offset emissions.

The slump in prices in 2023 has hurt sentiment in the market along with parties to the Paris Agreement failing to find consensus on Article 6 at the last UN Climate Change Conference in Dubai.

Standardized contracts hit record low

Platts CEC, which prior to Jan. 2 reflected Carbon Offsetting and Reduction Scheme for International Aviation-eligible credits including standardized contracts, ended the year at 74 cents/mtCO2e on Dec. 29, S&P Global Commodity Insights data showed. The price shed 78% of its value through the year after starting $3.45/mtCO2e on Jan. 3, 2023. It hit an all-time low of 45 cents/mtCO2e on Nov. 8 since the assessment began Jan. 4, 2021.

Platts CNC, which reflects nature-based credits including standardized contract, closed the year at 20 cents/mtCO2e. The price is yet to fully recover since it hit a record low Dec. 20 after shedding 60% of its value between Dec. 18 and Dec. 20.

Platts CNC fell 95.7% in 2023 after starting the year at $4.65/mtCO2e. The price came under pressure after a January 2023 newspaper report claimed that more than 90% of existing REDD+ projects verified by Verra were "worthless."

Household devices price drops 40.6%

Platts Household Devices Current Year carbon credit price tumbled 40.6% in 2023. The price began the year at $8.00/mtCO2e on Jan. 3 and ended at $4.75/mtCO2e on Dec. 29.

In the first half of 2023, the household devices segment took a hit from certain reports that raised questions about the dependability of monitoring practices in the segment. Planned updates for Verra's cookstoves methodology further added uncertainty among market participants and pressured prices of VCS-certified cookstove credits.

The fourth quarter of 2023 saw the price hit a record low of $4.35/mtCO2e on Nov. 17, before rebounding 9.2% by the year's close.

Nature-based avoidance current year down 70%

Platts Nature-based Avoidance Current Year price assessment, which reflects the most competitive internationally fungible carbon credits issued by nature-based projects that avoid greenhouse gas emissions, hit a record low as 2023 came to a close, plummeting to $3.50/mtCO2e on Dec. 29, from $11.50/mtCO2e, Jan. 3, 2023.

The sector was hit in the first quarter of 2023 by the newspaper report claiming ineffectiveness of most Verra REDD+ credits. Following the report's publication, Platts Nature-based Avoidance Current Year shed 2.75/mtCO2e, or 25% from Jan. 18 and Feb. 9.

On Nov. 21, Verra said none of its existing REDD+ methodologies would be submitted to the Integrity Council for the VCM for approval under the Core Carbon Principles -- a global benchmark for high-integrity carbon credits that set rigorous thresholds on disclosure and sustainable development. A week later, Verra launched a new REDD+ methodology, which it said will be assessed against the Core Carbon Principles, with all existing REDD+ projects transitioning to the new methodology. The announcements led to further uncertainty in the segment, resulting in prices falling.

Renewables prices fall amid quality concerns

With the market preferring higher integrity credits, the renewables segment suffered as it was marred by quality concerns.

Platts Renewable Energy price mostly fell through 2023 except in May and August when prices rose.

Platts Renewable Energy Current Year price was assessed at $3.05/mtCO2e on Jan. 3 on the first trading day of 2024. The price was assessed below $2.00/mtCO2e at $1.80/mtCO2e on Dec. 29 -- the last trading day of 2023.

The reference base for the Platts Renewable Energy current year price was updated July 17 to Gold Standard-certified wind and solar renewable energy credits from India and Turkey. On July 17, the price was assessed at $2.85/mtCO2e. The price plunged 36% from the July 17 to Dec. 31.

Nature-based removals strengthen

The natural carbon capture segment was one of the few segments that was relatively stable in 2023. Controversies over REDD+ credits led to a strong preference for afforestation/reforestation credits -- the most competitive carbon credit category under natural carbon capture. The spread between Platts Nature-based Avoidance price and Platts Natural Carbon Capture price widened through the year.

The spread between the two assessments was $1.40/mtCO2e on Jan 3, 2023. On Dec. 29 the spread widened to $9.45/mtCO2e.