Voluntary carbon market rally set to stretch into 2022 on demand optimism

Voluntary carbon markets, which played a significant role in global decarbonization last year, look set to extend their surge into 2022, as the urgency of the global climate crisis drives corporations and national governments to setting ambitious carbon neutrality goals, with many aiming to go "net zero" within the next twenty years.

"Demand is expected to pick up in Q1 2022 and really increase by Q4. More volumes are expected in the market in 2022," a developer told S&P Global Platts.

The Platts CEC, the first assessment launched by Platts on Jan. 4, 2021, surged 900% over the course of the year. On Nov. 23, 2021, it was assessed at an all-time high of $8.72/mtCO2e from 0.80/mtCO2e on Jan. 4. The CEC price assessed at $8/mtCO2e on Dec. 31, 2021. The presence of standardized contracts in the space like Xpansiv's GEO and ACX's CET helped propel activity in the CORSIA segment.

The Platts CNC, which reflects nature-based credits, jumped 198.92% from its launch on June 14, 2021. On Dec. 31, the assessment price was at $13.90/mtCO2e from $4.65/mtCO2e on June 14. The CNC was assessed at an all-time high of $14.55/mtCO2e on Dec. 3, 2021. The nature-based credit segment saw a steep rise from mid-October to early-December, when increased demand coupled with a supply shortage caused prices to rise steeply.

Earlier seen to be at a substantial discount to the CORSIA segment, non-CORSIA renewable energy prices slowly caught up and were at par with CORSIA prices on Dec. 22, 2021 when Platts CEC and Platts Renewable Energy prices were both assessed at $7.40/mtCO2e.

The sharp spike in renewable energy prices was primarily due to large-scale purchases of renewable credits by crypto traders from the Klima DAO Decentralized Autonomous Organization, who claim their goal is to increase base prices in the voluntary carbon market.

The launch of trading on Xpansiv's C-GEO contract on Jan. 5 is yet to have an impact on the prices. The contract is based on underlying renewable energy projects. ACX has a similar RET contract, but traded volumes on the contract have been low.

The spread between the Platts Natural Carbon Capture and Platts Nature-based Avoidance price assessments was seen significantly narrowing towards the end of the year, driven primarily by an even thinner supply in the natural carbon space and the presence of standardized contracts for avoidance credits that made trading easier.

On Aug. 9, 2021, when the assessments were launched, the Platts Natural Carbon Capture price was assessed at $15.00/mtCO2e -- more than double the price of Platts Nature-based Avoidance at $7.06/mtCO2e. On Dec. 31, Platts Natural Carbon Capture Current Year price was assessed at $14.95/mtCO2e while Platts Nature-based Avoidance Current Year price was at $14/mtCO2e –- a spread of just 95 cents.