Daily Update: April 12, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Calls for Verification in Voluntary Carbon Markets

As global temperatures rise, governments and companies are exploring multiple avenues to lower CO2 emissions. Some mechanisms are regulatory — carbon taxes, for example, make businesses pay the government for each metric ton of greenhouse gas emitted. Others, such as the voluntary carbon market, are, as the name suggests, voluntary.

The voluntary carbon market (VCM) is a way for companies to offset emissions they currently can’t avoid, S&P Global Commodity Insights said. The companies do this by financing carbon projects, which either release no carbon or remove it from the air. These projects include renewable energy ventures, carbon capture and storage, and reforestation. 

Carbon project developers issue carbon credits — one for each metric ton of carbon removed or avoided by the project — which an organization can buy to compensate for its own emissions. The credits must be certified by a standard, or a third-party group that corroborates the project’s impact. 

Of course, not all carbon credits are worth the same. According to S&P Global Commodity Insights, credits from projects that actively remove carbon from the atmosphere typically trade at higher prices than those that only avoid emissions. The type of project and its implementation costs affect pricing as well. The year the credit was issued, known as the “vintage,” also plays a role, as does the reputation of the particular standard and the country in which the project is located. For example, carbon projects in UN-designated least developed countries may carry a premium because they often work toward other social action goals alongside climate targets. 

Even as the VCM grows, it has not been without controversy. An investigative report published in The Guardian on Jan. 18 alleged that carbon credits issued by REDD+, a UN forest management program, did not represent real greenhouse gas reductions. After, carbon credit prices almost halved to about $1.70 per metric ton of CO2 equivalent. 

The report caused buyers to hold back on investments and take a closer look at their carbon credit portfolios. In particular, some market participants questioned the logic of avoidance credits, or credits financing projects that simply avoid releasing carbon. As a result, many have started favoring carbon removal projects such as reforestation. However, according to Mikkel Larsen, CEO of carbon exchange Climate Impact X, both types of credit still have a place in the VCM, though removal credits will become more important in the long term. “It is not a matter of either/or — we need a blend of solutions," Larsen said.

Carbon credit prices are recovering, but the REDD+ controversy has sparked calls to establish a more robust system for verifying a project’s positive impact. As carbon markets play an increasingly larger role in combating the climate crisis, participants hope for methodologies and technologies to continue evolving as well.

Today is Wednesday, April 12, 2023, and here is today’s essential intelligence.

Written by Claire Delano.

Economy

Global Economic Growth Accelerates Further In March Amid Service Sector Revival

Global business activity accelerated further in March, reaching a nine-month high, according to the S&P Global PMI surveys based on data provided by over 30,000 companies. While India once again recorded the fastest expansion, all other major economies bar the U.K. and Australia, reported improved performances.

—Read the article from S&P Global Market Intelligence

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Capital Markets

Malaysian Banks Outlook 2023: Prepared For Tougher Conditions

Strong economic growth has helped borrowers to resume regular repayments. Write-offs and recoveries have also helped banks to maintain low nonperforming loans (NPL) ratios. Low-income households and SMEs are vulnerable to rising costs. This could lead to moderate increase in NPLs. Credit costs should stay at 20-30 bps as banks will remain cautious amid higher interest rates and global uncertainty.

—Read the report from S&P Global Ratings

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Global Trade

Urals Imports By China's Independent Refineries Hit Record High In March

The growing affinity for deeply discounted Urals among China's independent refining sector lifted overall inflows of Russian crude to a record high in March, but the trend may not spill over to coming months as competition for cargoes heats up coupled with OPEC+ production cuts. When the European Union ban on Russian crude came into effect in early December, market activity from Chinese buyers paused for a while, as they sought clarification on logistics and trade financing. However, it picked up sharply soon after, with buyers taking advantage of the plentiful availability and low prices of the Urals barrels.

—Read the article from S&P Global Commodity Insights

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Sustainability

Listen: How Big Bank BBVA Is Approaching The Low-Carbon Transition

The low-carbon transition will require some major innovations, a rapid buildout of existing technologies and significantly more financing, the recently released synthesis report of the Intergovernmental Panel on Climate Change states. In this episode of the ESG Insider podcast, hosts Lindsey Hall and Esther Whieldon sit down for an interview with BBVA Chair Carlos Torres Vila to learn how one of the largest banks in Spain and Mexico is approaching the transition.

—Listen and subscribe to ESG Insider, a podcast from S&P Global Sustainable1

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Energy & Commodities

Negative Gas Prices Return To Permian Basin As Overlapping Maintenance Looms

Spot natural gas prices in the Permian Basin traded into negative territory April 10 as the market braced for another wave of midstream capacity cuts prompted by spring maintenance on two critical intrastate gas pipelines. In early trading, next-day supply at Waha changed hands at minus-33 cents/MMBtu with other nearby locations also seeing negative pricing, data from Platts and the Intercontinental Exchange showed.

—Read the article from S&P Global Commodity Insights

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Technology & Media

From the Stadium to the Screen: Examining the Impact of Streaming on Sports Media and Consumption

There is no denying the importance of sports programming to TV networks and operators alike. Sports content is the last bastion of the linear TV ecosystem, with live events like the Super Bowl and the NCAA's March Madness accounting for over 95% of the most-watched programs in 2022. However, a shift to streaming is underway as direct-to-consumer services increasingly edge into live sports broadcasting. As sports fan consumption patterns change, media rights deals and network economic models are adapting to the new digital age.

—Read the article from S&P Global Market Intelligence

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