Voluntary carbon credit buyers recalibrate market strategies, tighten scrutiny
- Media Manager
- Feb 13, 2023
- 1 min read
S&P Global - Commodity Insights
Published: February 13th, 2023
The recent controversy around deforestation avoidance projects and the carbon credits generated from them have not only dented market confidence, but also prompted buyers to reassess some long-term procurement strategies and stall or divert investments, according to traders and market participants.
The market decline has also prompted calls for existing carbon market methodologies and practices to be reviewed and enhanced, as existing systems are likely to come under more scrutiny and stress testing, with the role of carbon markets in cutting emissions becoming more critical.
A wide swathe of buyers, ranging from investors to large corporates with long-term investments in carbon projects, are reassessing how their carbon credit portfolios are structured in the aftermath of the controversy, Singapore-based traders said.
Voluntary carbon credit prices, which were already under pressure in 2022 due to a global energy crisis, lost nearly half their value to around $1.7/mtCO2e after the Guardian published an investigative report on Jan. 18 alleging that REDD+ carbon credits issued were "phantom credits" and did not represent real carbon reductions.
The Platts-assessed nature-based carbon credits, or CNC, rebounded to $2.5-$2.75/mtCO2e during Feb. 7-10, according to S&P Global Commodity Insights data.
"The sharp downtrend observed in the last month has affected all vintages and appears to be directly related to a loss of confidence in light of the recent media articles," Mikkel Larsen, chief executive officer with Singapore-based carbon exchange Climate Impact X (CIX), said.
"While this is a notable drop, it will not be the first or the last time. Such market fluctuations and volatility will always be inevitable if the underlying technologies and methodologies are imperfect," he added.
