ALLCOT Voluntary Carbon Market Report – May 2017

29th May 2017 by CMIA

The UNFCCC was holding its annual inter-sessional meeting in Bonn earlier this month, where representatives of more than 190 countries were discussing how to turn the Paris Agreement into action.

In addition to negotiations over the structure of future international carbon markets, discussions have been taking place regarding how the aviation industry may be able to use offsets from REDD-Plus projects to comply with its Carbon Reduction and Offsetting Scheme for International Aviation (CORSIA).

The World Bank has been holding talks with the International Civil Aviation Organisation to see how the World Bank’s Forest Carbon Partnership Facility could cooperate with CORSIA. The FCPF is a pilot project that will invest in projects to reduce deforestation in developing countries in exchange for future offsets.

Under CORSIA, airlines will be required to buy carbon offsets to neutralise all emissions above a benchmark that will be set in 2019-2020, in order to achieve carbon-neutral growth.

The technical rules of CORSIA are still being worked out among ICAO and its stakeholders, in particular which offset standards will be accepted for compliance.

According to data on the UNFCCC website, more than 4.5 million CERs have been voluntarily retired since the start of the year, and sources report that there has been a strong upsurge in interest in CERs from the first commitment period of the Kyoto Protocol (2008-2012).

“Buyers that we are engaging with don’t want to buy voluntary offsets at the moment,” one broker said. “They want CP1 CDM credits because they are the cheapest available.”

CP1 CERs represent emission reductions that were made between 2008 and 2012, and many of these offsets were the result of self-financed projects in developing countries.

CDM project owners had hoped for a higher return when investing, but the collapse of the CER market, and the fact that CP1 CERs are no longer eligible for use by developed countries means the price has tumbled to as little as $0.10/tonne, the source said.

However, the interest in CP1 CERs may be a short-lived phenomenon, the source added,

“I don’t think there is much CP1 volume left. This trend might continue for a month or so.”

This focus on retiring UN offsets may be hampering demand for VCS and Gold Standard offsets at the moment, which is reflected in generally weaker prices compared to a month ago.

Prices for Gold Standard offsets (irrespective of technology) dropped briefly below €4.00/tonne at the start of May, but are now quoted at around €4.00/tonne compared with €4.12/tonne in mid-April, while VCS standard credits have also declined, and were last seen averaging less than €1.40/tonne.

Forestry offsets have been seen offered at less than €6.50/tonne compared to more than €7.00/tonne last month, and cookstove projects are being transacted at around €4.00/tonne.

A policy brief published this month by the Gold Standard points out that the development of Nationally-Determined Contributions (NDCs) by all countries under the Paris Agreement means that carbon offsetting risks being marginalised as a meaningful contribution to fighting climate change.

Because the Paris Agreement requires all countries to set out policies to cut emissions and to account for these reductions, carbon offsets will run the risk of being counted twice: once by the host country and once by the country which has acquired them.

To avoid such double-counting, the Gold Standard paper proposes that corporate entities will need to focus more on reducing their own emissions at home, and then investing in reduction activities that are not covered by a developing country’s NDC.

“Carbon credit trading remains an option and could be most suited to foster private sector investments in sectors outside NDCs or in the context of market-based instruments designed to deliver on a sectoral target,” the report concludes.

The Dutch government has thrown its weight behind a new domestic carbon offsetting plan, according to a report by Carbon Pulse. The new initiative is aimed at sectors of the economy that are not covered by the EU Emissions Trading System, and the scheme’s authors hope that it will generate as many as 500,000 tonnes of offsets.

Prices for Dutch domestic carbon offsets could range between €2-20/tonne, Carbon Pulse reported.