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INTRODUCTION: A MARKET IN TRANSITION
On May 31st, we released our annual State of the Voluntary Carbon Market report, against a backdrop of some very important developments in the carbon market. Within the span of two weeks, the White House released new Principles for High-integrity Voluntary Carbon Markets. The Symbiosis Coalition made an advance market commitment for up to 20 million tons of nature-based carbon removal credits by 2030. And then the Integrity Council for Voluntary Carbon Markets (ICVCM) announced its approval of the first seven carbon credit methodologies that meet its high-integrity standards (known as the Core Carbon Principles).
These events arrive after a challenging year in many ways for the voluntary carbon market. Our global analysis finds that market transaction value dropped 61 percent year-on-year, driven by a fall in transactions for REDD+ and renewable energy (which make up the majority of the market).
The data show us a market in transition, as important integrity guardrails are being put into place. In many ways, 2023 was a year spent in limbo, as buyers waited for the ICVCM Core Carbon Principles, VCMI Claims Code, and Verra consolidated REDD methodology to come into operation. In the first six months of 2024, we’re already seeing signs of both stabilizing prices and strong future demand, such as the Symbiosis announcement and new Emission Reduction Purchase Agreements signed for jurisdictional REDD+ credits from Ghana and Costa Rica.
A year’s worth of market data allows us to see nuance in the numbers. For example, the finding of credit transactions declining reflects more complicated dynamics than a simple demand contraction – including a drop in speculative trading, and some buyers stepping back after over-purchasing in previous years. Meanwhile, our data on credit retirements and project registrations (particularly for nature-based projects) in 2023 show a different trend: one of long-term supply and demand remaining robust. That “big picture” overview is one of the benefits of these reports.
We’re also tracking the rollout of Article 6 of the Paris Climate Agreement on carbon trading mechanisms. Significant uncertainty remains around Article 6 implementation, how it will interact with the voluntary carbon market, and how countries should be thinking about their national A6 strategies. The world is at a pivotal moment for ensuring success of the Paris Agreement targets. And yet I don’t see the necessary infrastructure for data-sharing and decision-making in place, so that countries can design strategies around their Nationally Determined Commitments as effectively as possible. We need to build that, quickly.
Most troublingly, the report shows that a substantial amount of private finance to forest- and nature-based climate solutions, particularly in the Global South, evaporated last year. Transactions for nature-based credits plummeted by nearly 70%, from $1.1B to $351M. So, some $750 million of climate finance did not flow to tropical forests last year. Some Projects in Asia, Latin America, and the Caribbean, where the majority of these projects are located, bore the brunt of that fall – an unintendedly broad consequence, perhaps, of heavy recent scrutiny of certain projects and methodologies.
In this Dispatch, we’ll cover some findings of the State of the Voluntary Carbon Market report, and are also pleased to share some insights and reactions to the report’s findings from experts in the field. We enjoy our role in helping to host the conversation around market direction and design, and we are grateful to all of you for taking part in it.
Michael Jenkins |
