Credits from Katingan project hold the fort in a bearish REDD+ market

Credits from the Katingan project have remained largely stable during the December through February period, indications from S&P Global Commodities Insights during the trading month ending Feb. 22 showed, at a time when the REDD+ segment of the voluntary carbon markets is witnessing sharp bearishness.

The REDD+ sector was hit in the first quarter of 2023 after a report by the Guardian claimed the ineffectiveness of most Verra REDD+ carbon credits. REDD+ stands for reducing emissions from deforestation and forest degradation, and covers activities aimed at protecting forests from deforestation that can be used to generate carbon credits.

Perceived better quality of the Katingan project and no bad press has likely led to the stability in the prices. Lack of new issuances from Indonesia to voluntary carbon markets has also been instrumental in cementing the price of the project, according to sources.

The Platts Nature-based Avoidance (NBA) Current Year price assessment—which reflects the most competitive internationally fungible carbon credits issued by nature-based projects that avoid greenhouse gas emissions—has remained at a record-low into the beginning of the year, plummeting 66% to $2.70/mtCO2e year to date from $8/mtCO2e in 2023.

Katingan credits stable despite bearishness in the segment

Katingan credits' prices, issued under Verra's VM0007 methodology with VCS-CCB Triple Gold certification, have been stable. Perceived higher quality as well as the project being a peatland restoration project has likely led to the demand for the project, at a time when market players are shying away from other REDD+ projects.

An India-based broker said that activity was specific to Katingan, while other projects like Rimba Raya, which are also perceived to be a premium project, were not seeing as much activity.

Other sources had said supply of Rimba Raya credits was thin, probably leading to lower trading in those credits.

Most trades for Katingan vintage 2019 credits ranged from $5.05-$5.70/mtCO2e in the December through February period, according to Platts, part of S&P Global Commodity Insights, price indications.

A trade for Katingan project was heard at $5.50/mtCO2e on Feb. 14 for 2019 vintage with 20,000 mt volumes. Another trade was seen at $5.25/mtCO2e on Feb. 13 for same vintage, but with 1,500 mt volumes.

While the activity for Katingan credits is much better than other REDD+ peers, there is a dip in the activity for the project as well, owing to the larger bearishness witnessed in the segment.

Most of the trades seen were of small volumes, indicating the lack of conviction in the market.

For 2020 vintages, most of the trades were seen in the range of $5.20-$6/mtCO2e, as per the heards indications published by Platts.

The $6/mtCO2e trades were, however, seen for small volumes.

Spreads

The Katingan premium towards Keo Seima equivalent credits was heard at $1.75/mtC02e, which has been stable since January given the lack of trades in the market.

Platts heard Katingan credits were at a premium of $1.75/mtCO2e over Keo Seima on Jan. 26. Three different sources indicated spreads on Jan. 25 at $1.20/mtCO2e, $1.75-$2/mtCO2e and $2/mtCO2e.

In the first week of January, one source had reported a $2.00-$3.00/mtCO2e premium on Jan. 3 while a second source reported a $1.70/mtCO2e premium on the same day after market close.

However, the $1.75/mtCO2e spread has been seen stable since mid-January.

Katingan 2019 vintage credits were seen at a discount of 50 cents/mtCO2e over 2020 vintage credits on Jan. 26, while on Jan.25, the same was heard at $1.2/mtCO2e.

Lack of trades in other REDD+ projects

Multiple market sources confirmed that apart from Katingan, no other projects were trading in the REDD+ segment.

Sources said that they had not seen Keo Seima trades since December. Indicative price for Keo Seima vintage 2019 credits was heard in the range of $2.75-$3/mtCO2e in February.

On the scarcity of market indications for Keo Seima credits compared to Katingan indications, sources said that demand was only seen for the latter due to their perceived better quality. While offers were still circulating for other projects, no trades or bids were seen.