Colombia tops list of most appealing destinations for investment in carbon credits

Colombia, Kenya, Cambodia, Mexico and Peru have been billed as the five most favorable countries for investors and project developers in the voluntary carbon market, research firm Abatable said in a new study released Sept. 26.

In its latest VCM Investment Attractiveness Index, Abatable ranked countries most primed for carbon market investment based on present market conditions and their potential to shape the future of carbon markets.

"We looked at a country's global market readiness, which is essentially, how the country is preparing from a [carbon] policy perspective and an Article 6 readiness perspective," Maria Eugenia Filmanovic, co-founder of Abatable, told S&P Global Commodity Insights.

"Then we looked at the investment landscape, which looks at the national, political and economic context, measuring risk specifically for foreign investors in these countries. And, then the last pillar is what we call climate, nature and people opportunity, which looks at impact related metrics."

This specifically looks at the role the voluntary carbon market can play in that country in closing the financing gap to reduce emissions, conserve critical ecosystems and improve livelihoods, she added.

Regulatory progress

Some countries made big leaps thanks to "their regulatory advances" to provide a more stable and sustainable environment for stakeholders.

Colombia's appeal rose significantly in this year's index due to its innovative approach to carbon pricing.

"The country has really moved substantially when it comes to building a regulatory framework in the carbon space. Colombia has historically been quite active in creating its own national registry," Filmanovic said. "[Colombia] is also reupping the ambition around its carbon tax, potentially increasing the level, which might spur additional supply in the coming months."

Meanwhile, Kenya's appeal remained strong after its government recently approved its carbon market policy, resulting in a robust and investor-friendly environment for carbon projects.

Kenya's "positive performance stems primarily from its engagement with Article 6 of the Paris Agreement, as well as from a favorable supply of in-demand carbon credits," Abatable added in a statement.

Sentiment index

The voluntary carbon market has endured two turbulent years, as the efficacy of some carbon projects and credits have been questioned by media and academia, pushing down prices and lowering market confidence. But growing interest for carbon removal projects, along with a suite of integrity initiatives, are starting to restore some trust in carbon offsets.

Filmanovic said reactions from the industry to the VCM Attractiveness index, which is in its second editions, has been very positive.

"Investors have been looking at this as an alternative indicator relative to perhaps the bottom-up analysis and the legal analysis they do on the regulatory framework, land rights and other topics with their actual legal team" she added. "And it's used often as sentiment index in some of the analysis they do."

The level of data that's fed into this process has also expanded from the first edition, especially with more data input and engagement on Article 6 of the Paris Agreement.

Interest in more country-level collaboration has also grown, with many countries submitting letters of authorization under Article 6 for carbon projects.

Demand for Article 6.2 credits has been slow to take off but there has been a slight shift in momentum in the past year after many developing countries expressed enthusiasm for this trading mechanism.

Article 6 sets the rules for global trade in greenhouse gas emissions reductions, and, under Article 6.2, countries can adopt to allow cross-border exchanges of credits.

Platts, part of S&P Global Commodity Insights, assesses a wide range of high-quality voluntary carbon credit funding projects that demonstrate additionality, permanence, exclusive claim and co-benefits.

The value of these credits can vary from CORSIA-eligible offsets (Platts CEC, $17.55/mtCO2e) to household device offsets ($3.70/mtCO2e) and tech carbon capture offsets ($150/mtCO2e), Commodity Insights data showed Sept. 24.

The Platts Carbon Price Explorer offers monthly insight on a variety of carbon values across compliance and voluntary markets.