FEATURE: Platts-Viridios CARBEX Indices pricing shows strong uptrend post Glasgow conference

The historical data of six Platts-Viridios CARBEX Carbon Credit Indices showed a similar pattern of steep upward curve after the November 2021 Glasgow conference, which were moving at a rather slower pace before that period.

The six carbon credit indices reflect the value of different types of voluntary carbon credits and enhance market transparency in an otherwise very opaque market. S&P Global Platts recently updated daily and monthly pricing data for all six of its Platts-Viridios CARBEX Carbon Credit Indices to Jan. 4, 2016, with effect from Jan. 21, 2022. These prices were launched in August in a partnership with Viridios, an artificial intelligence firm.

The Household Devices CARBEX prices are generated from the projects that are focused on sustainable development within individual communities by upgrading basic needs with cleaner alternatives.

Soil CARBEX are projects that focus on improvements to agriculture resulting in increased sequestration of CO2 from the atmosphere and the development of soil organic carbon.

Eco Create CARBEX are projects that are focused on carbon sequestration through activities such as reforestation, afforestation and wetlands restoration while Eco Create CARBEX Biodiverse are projects that are focused on carbon sequestration as outlined in Eco Create CARBEX, but also include critical additional SDGs.

Eco Protect CARBEX are projects that focus on avoiding deforestation and forest degradation while Eco Protect CARBEX Social are projects similar to Eco Protect CARBEX, but with additional SDGs.

Viridios has generated the values of these carbon credits based on historic relationships between a broad data set of carbon credit transactions and related commodity prices.

Data trends

Analysis of the data shows a few identifiable trends. The six indices show a similar trend but for the purpose of citing examples, trends in the Household Devices CARBEX and Soil CARBEX have been highlighted below.

The indices showed relative stability from Jan. 4, 2016 to early March 2020. For instance, on Jan. 4, 2016 (the date from when data is available) the Household Devices CARBEX was at $4.95/mtCO2e while the Soil CARBEX was valued at $7.96/mtCO2e. On March 4, 2020, the Household Devices CARBEX was assessed at $5.51/mtCO2e and the Soil CARBEX at $10.35/mtCO2e. Over the four-year two month period, the Household Devices CARBEX rose 11.31% and the Soil CARBEX by 30.03%.

Post March 4, 2020 to the end of April 2020, the six indices saw a dip. On April 30, 2020 the Household Devices CARBEX and Soil CARBEX were assessed at $4.43/mtCO2e and $8.82/mtCO2e respectively, lower than their March 2020 values.

Then from May 2020 to January 2021, there was a gradual rise in the prices of the indices. From January 2021, the upward curve steepens showing a stronger increase in prices in the months following until November 2021 – when the much-awaited Glasgow summit commenced. From Jan. 4, 2021 to Nov. 1, 2021, the Household Devices CARBEX and Soil CARBEX saw an increase of 68.13% and 69.96% respectively over the 10-month period.

Post Nov. 1, 2021, the upward curve gained a sudden vertical tilt showing a very steep increase in prices. From Nov. 1, 2021 to Jan. 31, 2022 the Household Devices Carbex rose 58.70% in just a three-month period. In the same timeframe, the Soil CARBEX index jumped 58.50%.

COP26 impact

The strong post-November value rise seems to suggest a strong reaction of the CARBEX indices to the UN Climate Conference, which was held in Glasgow during the Oct. 31 and Nov. 13 period.

During the Glasgow Conference, the parties were able to find a compromise on the only article of the Paris deal that was yet to be finalized, Article 6. While Article 6 rules primarily refer to carbon credits to be issued under a yet to be implemented crediting mechanism akin to the United Nations Kyoto Protocol's era of CDM mechanism, the implementation of this article has boosted the credibility of carbon credit trading schemes in general, including the voluntary carbon market.

Klima DAO

Also in November, a big boost to liquidity and prices within the voluntary carbon market came from a cryptocurrency group with a focus on climate activism called Klima DAO.

Klima DAO launched at the end of October a cryptocurrency which derives its value from a treasury of carbon credits. The only credits absorbed in the treasury between October and early January 2022 were BCT tokens, which are standardized contracts reflecting VCS certified voluntary carbon credits with a 2008+ vintage.

The strong arbitrage opportunities offered by the BCT token price if compared to VCS 2008+ credits available in the market, as well as the incentives offered by the Klima DAO project to traders releasing their credits into its treasury translated in millions of metric tonnes of older vintages carbon credits being sold into the treasury.

The main impact in terms of market prices was a strong surge mostly in the renewable carbon credits sector, which then reverberated across all segments of the voluntary carbon market. Renewable energy credits tend to be the most competitive in the market with old vintages often representing the market price floor. As these credits started to be absorbed in large numbers in the Klima DAO Treasury, the market price floor also rose, therefore pushing up the price of other segments of the market.