Indian cookstove credit prices fall amid preference for African projects

Indian cookstove credits were falling at a sharper rate than African equivalents amid stronger demand for projects in UN-designated least developed countries or LDCs, market sources said Dec. 29.

Offers for African credits were currently being heard at around $10-$11/mtCO2e for non-LDC countries and $11-$12/mtCO2e for LDC countries, down around 50 cents-$1/mtCO2e from September-October levels, market sources said.

Offers for Indian credits, which were earlier heard at a $1/mtCO2e discount to African non-LDC offers, have fallen more sharply over the same period to around $6.50-$7/mtCO2e from around $9.50/mtCO2e, the sources said.

Two sources confirmed they were seeing offers for 380,000 mt Indian credits as low as $6.50-$7/mtCO2e with VCS certification and 2021 vintage.

Concerns over additionality have long weighed on prices for Indian cookstove credits, but market sources said that more than questions over additionality, it is the "perception" that Indian credits were not credible.

"The Indian ones are tough because additionality comes into question, and the African ones are the only ones I have seen in demand," a US-based broker said.

Macroeconomic concerns like rising inflation and higher energy prices were also weighing on sentiment in the segment, but the fall in prices was largely seen in Indian markets and not African ones, sources said.

One source said a lot of sellers were looking to liquidate their positions, but buyers were hard to find, resulting in the fall in offer levels.

Charcoal vs firewood

Most buyers interested in buying cookstove credits were focused on Africa, one source said.

Another source attributed this to African countries being typically reliant on charcoal-based cooking methods, while in India it is mostly firewood. Replacing charcoal-fired cookstoves, which are more carbon-intensive than firewood cookstoves, generates better co-benefits for project developers, the source said.

The cost of investment is also lower in Africa, so many project developers are keen to base projects there, the source added.

This was reflected in the sharply higher the number of cookstove retirements in African countries compared to India.

Cookstove retirements in Ghana, Kenya and Uganda were the highest at 1 million, 934,274 and 634,705, respectively, over January-November, while India was 10th at 282,235 retirements, behind neighboring Bangladesh at 318,361 retirements.

A lack of development in most African countries was also driving the demand. Many countries in Africa are designated by the UN as least developed countries and trail India in terms of economic development, potentially making the co-benefits for investors much better in Africa than India.

Major corporations typically prefer LDCs over non-LDCs for buying cookstove credits, market sources said.

Even in Asia, countries like Nepal and Bangladesh, which neighbor India, attract higher credit prices as they are LDCs.

Fewer goals

The lower number of Sustainable Development Goals or SDGs in Indian cookstove projects also mean they cannot be part of Xpansiv CBL's SD-GEO contract, which requires a project to have at least five SDGs.

An Indian trader said there was significantly less supply from India of Gold Standard credits, which have more than five SDGs, and that most VERRA-certified credits from India had less than 5 SDGs.

"Only two VERRA projects in India have 5 SDGs to my knowledge," the source said.

Weaker macroeconomic conditions globally have been weighing on all voluntary carbon markets in 2022, but the impact has been limited on African cookstove credit prices because of the premium nature of the projects, as their higher number of SDGs cushion the impact, which was not the case for Indian cookstove credits.

Most Indian sellers are also trying to sell their existing supply as more issuances are likely to hit the market in 2023, sources said.

Five African countries were the top issuers of the cookstove credits globally over January-November: Kenya, Nigeria, Uganda, Ghana and Somalia at 2.6 million, 2.1 million, 1.5 million, 1.2 million and 1 million issuances, respectively.

India was seventh at 801,079 issuances over the 11-month period, behind Bangladesh at 1 million, but up surging from 530,266 in 2021.

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