December 2023 Voluntary Carbon Offsets Update
News
NGO releases a handbook to support the integrity of the voluntary carbon market. The Environmental Defense Fund (EDF), a US-based environmental NGO, has released an introductory handbook on nature-based carbon credits, specifically those developed through natural climate solutions (NCS). The guide aims to clarify to potential buyers, developers, sellers, and regulators of NCS credits, ensuring high integrity in their use. NCS involves actions that avoid, reduce, or remove emissions through nature conservation, restoration, and sustainable management. The handbook addresses how NCS crediting works, scaling up the supply of high-integrity NCS credits to meet global goals and ongoing debates in the sector. It also comes with issue briefs on crediting fundamentals, carbon crediting agreement design, and equity considerations. The initiative seeks to combat confusion and controversy surrounding the effectiveness and role of natural climate solutions credits, especially after recent price drops and integrity concerns.
VCM oversupply shrinks. In January, retirements of carbon credits from major voluntary carbon registries exceeded issuances, with over 20 million credits retired, primarily from Verra, Gold Standard, ACR, and CAR. While slightly lower than December's record high of 36.67 million retirements, January marked the third-highest month in the past year. Verra led in retirements with 13.88 million credits. The market's oversupply has reduced for the second consecutive month but still exceeds 946 million. Shell, a major player, retired over 19 million credits in December and January, contributing to its strategy to meet net carbon intensity targets, tightening to 9-12% in 2024.
VCM outlook strengthening. The voluntary carbon market is showing positive signs of increasing demand and a potential price recovery, including for some nature-based credits. Jennifer McIsaac, Vice President of Market Analysis at ClearBlue Markets, highlighted a rise in VCM prices with expectations of flattening in the medium term (2024-26) due to the growth of Article 6 and CORSIA aviation offset markets. Despite concerns about nature-based solutions credits following scandals, McIsaac emphasized distinctions within this market segment. However, a supply glut of around 800 million tonnes of credits may impact prices, with a mismatch between market volumes and those ready for Core Carbon Principles labeling. Issuances are reportedly declining, forestry credit issuances have decreased, and 2023 witnessed the highest retirements on record at 163 million tonnes. Historical VCM credit retirees include Volkswagen, Shell, Yamato Transport, Audi, and Diamondback. Nearly half of the available credit supply is V2019 or older, with 30% older than V2017, and buyers often avoid older credits due to longer times since emissions reductions were achieved. ClearBlue's CEO cautioned against discounting older vintages outright, highlighting potential quality in mature credits. Newer offsets are primarily linked to forestry (40%) or renewables (44%) projects.
Retirements reach record high
Both issuances and retirements surged in December, as is typical, but retirements reached a record high of 37.1 million tons. This was a year-over-year increase of 12.38 million tons from last December and 19.47 million tons from November. Issuances were below 2023 levels but still outpaced retirements by a small margin.
Forestry projects represent more than half of all retirements
Retirements from Forestry projects accounted for more than 50% of retirements in December, while Energy projects were the majority of issued offsets. Alternative Energy and Waste and Landfill projects represented 8% and 3% of issuances and retirements, respectively.
Supply outpaced demand by a small margin
The bank of offsets increased by the smallest amount in the past few years, rising by 7.1 million tons. The particularly large retirement numbers drove this.