EDITORIAL: Is 2024 a turning point for voluntary carbon markets or are there more headwinds ahead?

Quantum Commodity Intelligence - At the start of the year, Greg Lydka Morris and Pauline Blanc from market intelligence and carbon credit sourcing platform Abatable wrote an opinion piece for Carbon Insights looking at what 2024 had in store for carbon markets.

The prompt for the assessment was the "turbulent" 12 months of the previous year, which had seen carbon prices collapse in the wake of integrity issues over REDD+ projects and the COP28 climate talks failed to reach any agreements on Articles 6.2 and 6.4 of the Paris Agreement.

Any concerns - which were raised in the opinion - that COP29 could see a repeat of COP28 on Article 6 were erased last month with the positive outcomes on the Paris Agreement's carbon trading mechanisms, albeit with much work still to do of course.  But a couple of 'concerns' still remain.

Under Article 6.2, the country-to-country strand of the mechanism, countries are still able for the most part to establish their own trade rules. This Abatable's writers said in January could potentially open the "door to poor environmental and social practices" and leading to a risk that the credibility of Article 6 could be damaged.

This is still a possibility but it is likely that the scrutiny of the market will be so high that any poor practices will soon come under the spotlight.

In particular, one would imagine that any buyers of Article 6 carbon credits, be it Internationally Transferred Mitigation Outcomes or ITMOS under 6.2 or Article 6.4 emissions reductions (A6.4ERs), will pay particular attention to the integrity of the units they are buying to avoid any claims they are partaking in 'greenwashing'.

Demand for Article 6 credits, in particular under Article 6.2, was another issue raised in the January opinion. It noted that the pool of purchasers is small and that "more countries need to leverage Article 6 as buyers".

Little has changed since then apart from Norway joining the 'buyers club', when it announced at COP29 finance of $740 million for an Article 6 buying initiative. The Nordic country joins Singapore, South Korea, Sweden and Switzerland as the sovereign states that have so far announced plans to buy ITMOs.

Demand

This is perhaps more of a concern given the potential supply options, with an official from the Indonesian government stating earlier this month that that country alone has a surplus of over 300 million tonnes of carbon dioxide equivalent for 2022 alone.

Although it is unlikely all of this would come to market, the official also noted that the country had a surplus in 2021, without giving volumes, meaning there are more than 300 million available if the Southeast country wants to come to market.

The other main theme of the January opinion piece was that 2024 would be the 'integrity year' as the voluntary carbon market responded to the troubles of 2023. It is fair to say that on this, 2024 has been mixed.

On the one hand, initiatives, such as the Integrity Council for the Voluntary Carbon Market (IC-VCM), have progressed and we now have some standards and methodologies aligned with the IC-VCM's Core Carbon Principles integrity labels.

There have also been methodology improvements from carbon registries, as well as moves to digitalisation to improve efficiency and transparency.

But on the other there have been more scandals - in particular in the cleaner cooking segment of the market. Mainstream media and some in academia have continued with negative reporting and publishing, although several pieces have focussed analysis on projects and credits issued more than 15 years ago. These analyses really don't bring anything new to the debate - I think most people in the carbon market were aware by the mid-to-late noughties that HFC23 destruction was problematic, for instance.

The year ahead will be a good indication of whether 2024 was a turning point for carbon markets. There is still much to be done to overcome the integrity concerns, and convince buyers to come back to the market.

But maybe the positivity around Article 6 after Baku can feed into the wider market and in 12 months 2025 can be described as a year of moving forward.