Voluntary offset prices could rise further in 2022 - Eagle Commodities

14 Dec 2021

Quantum Commodity Intelligence - The price of voluntary carbon offsets could rise further in the first half of 2022 with continued demand from corporate buyers and growing interest from traders looking to enter the space, according to a research note published by Eagle Commodities Brokers on Tuesday.

The trade in voluntary offsets has expanded significantly in recent years as companies have looked to offset their emissions, and with growing momentum behind corporate net zero pledges.

Ecosystem Marketplace, a US-based non-governmental organisation dedicated to the sector, estimates that the value of voluntary carbon market transactions in 2021 crossed $1 billion as of November 9, more than three times the 2020 volume.

CME Group launched two new futures contracts in March and June that have attracted interest, and Intercontinental Exchange (ICE) will launch its own contract next year.

"Voluntary carbon markets benefit from being at the crux of two major investment themes: 1) Climate change and the radical change needed within less than a decade to prevent existentially threatening warming; and 2) the increasing role of governments in economic life including to price carbon," wrote Erduan Reid in a note.

"At the corporate level, carbon offsets are moving from the realm of marketing and CSR, to Treasury and risk. 1H22 looks constructive as corporates buy to offset 2021 emissions, while new bank, commodity trade shop and managed money buyside flow enters the space."

There has been a growing surplus of credits in the last few years with cumulative issuances of nature-based credits as much as 172 mt CO2e above demand as of the end of October, according to research from Trove Intelligence.

But the perception of a surplus has been largely erased in recent weeks with, on the one hand, growing certainty about future demand following the COP26 in Glasgow and, on the other, the retirement of more than 15 million tonnes CO2e of old credits by cryptocurrencies such as Klima DAO.

This, according to Eagle Commodity Brokers, put a floor under 2008+ VCS credits of $5-6/tCO2e.

Voluntary carbon prices were changing hands at less than $1/tCO2e at the start of the year, but analysts reckon a price of more than $40-50 is required to unleash significant volumes of supply from emission reduction projects in the long-term.