The recently released “State of the Voluntary Carbon Markets 2023” report by Ecosystem Marketplace (EM) reveals a significant trend shift within the VCM. It identifies a concentration of demand toward high-integrity and high-quality voluntary carbon credits, despite their higher price, that offer co-benefits beyond mitigating greenhouse gas emissions.

Analysis of transaction data indicates a substantial 82% surge in average carbon credit prices from 2021 to 2022, accompanied by a decline in overall transaction volumes. These findings imply a market consolidation among smaller yet dedicated purchasers willing to pay more for credits of superior quality. 

Notably, there’s a high demand for nature-based credits that hold certifications for co-benefits and align with Sustainable Development Goals (SDGs).

Here are the key points to particularly note from EM’s research.

5 Key Takeaways From the Report: 

1. Prices are at their peak, volume is down

The average prices of voluntary carbon credits have reached their highest point in 15 years, while the overall trade volumes have declined from the peak seen in 2021. Even though the volume of voluntary carbon credits traded fell by 51%, the average price per credit surged significantly by 82%. It jumped from $4.04 per ton in 2021 to $7.37 in 2022, which hasn’t been seen since 2008. 

Despite the drop in trade volume and value, this price increase allowed the VCM to remain relatively stable in 2022. In fact, despite dropping ~$0.40/ton, average prices to date in 2023 are still higher than in 15 years. 

2. Nature-based credits take the biggest market share

Nature-based solutions (NBS) were a primary contributor to the high market value, constituting nearly half of the market share – 46%. NBS credit prices were more than doubled in 2021 and 2022. EM is also seeing more premium for these credits in preliminary 2023 VCM data. 

The average price of credits from nature-based projects, including forestry, land-use, and agriculture projects, witnessed an increase of 75% and 14%, respectively, from 2021 to 2022. 

REDD+ projects dominate the NBS credits, but also include other projects in the Agriculture and Forestry and Land Use categories. These include Sustainable Agriculture Land Management Afforestation/Reforestation/Revegetation (ARR), Agroforestry, Improved Forest Management (IFM), and Blue Carbon (mangroves, seagrasses).

Agriculture project credits, also called agricultural carbon credits, also experienced a substantial surge in volume, rising by 283%.

3. Credits with co-benefits are pricier

Credits associated with robust environmental and social co-benefits, extending beyond carbon, commanded a significant price premium. Projects with at least one co-benefit certification had a 78% price premium compared to those lacking such certification. 

According to experts surveyed by Ecosystem Marketplace, these certifications are becoming increasingly necessary for buyers actively looking for these projects. Moreover, projects aligned with the UN SDGs demonstrated a considerable price premium, 86% higher than projects not linked to SDGs. This indicates a strong buyer preference for credits that contribute more to societal and environmental well-being. 

• RELATED: Carbon Credits and the Sustainable Development Goals

4. Buyers prefer newer credits

Newer carbon credits are commanding a higher price, suggesting that voluntary buyers are inclined towards recent vintages featuring more robust methodologies. EM reporters also suggested that these buyers prefer credits closely aligning with their current emissions years. 

In 2022, there was a 57% premium for credits with a more recent vintage, reflecting recent emissions reduction activities, compared to a 38% recency premium observed in 2021. This comparison used a historical 5-year rolling cutoff date from the transaction year.

5. CORSIA-eligible credits surge

Credits eligible under CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) experienced a significant surge in market value, marked by a 126% increase in price. The notable growth of CORSIA in the VCM in 2022 indicates an expanding relationship between compliance markets and the VCM. This is crucial for market participants due to several factors:

• The quality criteria outlined by CORSIA have been adopted by the Voluntary Carbon Markets Integrity Initiative (VCMI) until the Integrity Council’s core carbon principles are fully established. 
• CORSIA will enter its inaugural compliance phase in 2024. 
• Countries are beginning to implement Paris Agreement’s Article 6, further emphasizing the relevance of CORSIA in broader carbon markets.

A Shift Towards Integrity and Quality

The latest report by Ecosystem Marketplace delves into self-reported transaction data from >160 participants in their annual market survey. These contributors represent credits sourced from 1,530 projects across over 130 project types traded globally. 

Typically, respondents encompass project developers, investors, and intermediaries. Moreover, data regarding project registrations, credit issuances, and retirements were collated from project registries, adding depth to the comprehensive analysis presented in the report.

Stephen Donofrio, Managing Director of Ecosystem Marketplace, highlighted the pivotal moment witnessed in the VCM, noting that:

“While the data do not show the same type of growth by volume present in previous reports, our market analysis shows a critical, increased shift in market behavior towards integrity and quality.”

• READ MORE: Real Voluntary Carbon Market Value is $2 Billion

Donofrio further emphasized the evolving sophistication of credit buyers, underscoring their eagerness to understand the actual impact of their investments.

EM’s full report is available for download here.

Nasdaq has introduced a groundbreaking technology aimed at securely digitizing the issuance, settlement, and safekeeping of carbon credits. This innovative offering will be made available to market infrastructures, registry platforms, and other global service providers.

The primary objective of this service is to foster the growth and institutionalization of global carbon markets. 

Currently, the carbon credit market operates with bilateral trading and significant reliance on manual processes, limiting its scalability as the market progresses. This rigidity, combined with a lack of standardization in credit data, has hindered substantial capital inflows into the market.

Nasdaq’s Cutting-Edge Carbon Credit Digitization Technology

Executive Vice President at Nasdaq, Roland Chai, highlighted the need for flexibility, standardization, and connectivity in carbon markets. He further noted that:

“Bringing institutional grade technology to underpin the market will drive ever-greater liquidity across carbon marketplaces and open the possibility of greater interoperability between registries in the future.”

Nasdaq’s new technology will allow market operators and registries to create standardized digital credits and distribute them with full auditability throughout the transaction lifecycle. 

• RELATED: The Carbon Credit Lifecycle

Nasdaq has also developed a carbon taxonomy framework that can readily incorporate new types of credit as the market expands. There will also be comprehensive APIs that will allow participants to seamlessly interact across the market. 

Together, this will help establish a standardized, trusted ecosystem capable of attracting high-quality liquidity from a variety of investors.  

Using smart contract technology, the service enables secure creation, processing, and management of rights linked to the underlying asset. By automating asset servicing and settlement procedures, the technology promises increased efficiency and transparency throughout the trade lifecycle.

Digitization and automation will ensure a comprehensive audit trail of credit ownership and retirement. 

The issuance, settlement, and custody capabilities are adaptable to integrate with existing financial system architectures or operate as an independent platform. As such, it allows flexibility to connect with traditional payment networks and bilateral settlement options. 

This enables infrastructure providers to continue serving conventional markets while tapping into growth prospects in carbon markets without paying for the substantial costs associated with major changes.

Additionally, Nasdaq offers infrastructure optionality that enables the technology to be deployed on either a centralized database or using private blockchain technology.

Partnership for Carbon Removal Excellence

Alongside the service launch, Nasdaq has unveiled a collaboration with Puro.earth, a prominent standards and registry platform specializing in engineered carbon removal. 

Their partnership aims to register CO2 Removal Certificates (CORCs) and monitor the issuance, retirement, and transfer of these assets. The ultimate goal is to prevent duplication of carbon removal projects, ensuring complete traceability and transparency.

The game-changing technology will help propel the growth of voluntary carbon markets through a suite of APIs and standardized contracts. 

Standardizing carbon credit contracts is crucial. This is particularly critical at this time when questions arise regarding the real climate impacts of projects generating these credits.

As per Antti Vihavainen, CEO of Puro.earth, accurate management of carbon credit lifecycle is critical in establishing trust. With Nasdaq’s new technology, their carbon crediting infrastructure will be modernized.

It was in February last year when Puro.earth launched Puro Registry in Nasdaq, a public registry dedicated to CORCs.

• READ MORE: NASDAQ’s Puro.earth Launch Carbon Registry

The new system will be accessible through the Puro Connect API, catering to carbon marketplaces and exchanges. It will also align CORCs with Article 6 of the Paris Agreement.

Puro.earth’s Puro Standard represents the first carbon removal standard tailored for engineered carbon removals within the VCM. It also includes top-tier carbon removal methodologies in line with the Intergovernmental Panel on Climate Change (IPCC) definition for carbon removal.

Certified carbon removals suppliers are verified by an independent third-party. Companies seeking to offset their carbon emissions can buy the CORCs directly from suppliers or through a third-party marketplace.

Nasdaq’s cutting-edge technology aims to transform carbon markets by offering digitized issuance, settlement, and custody for carbon credits.

The technology’s integration with Puro Connect API and adherence to IPCC guidelines sets a new standard for carbon removal within VCM. Nasdaq’s innovation paves the way for a dynamic, trusted ecosystem attracting diversified investors while modernizing the carbon crediting infrastructure for market growth.

The Voluntary Carbon Markets Integrity Initiative (VCMI) has introduced additional guidance for its Claims Code of Practice, allowing firms to make claims about their use of high-quality carbon credits. 

The new guidance encompasses a Monitoring, Reporting, and Assurance (MRA) Framework, an identity mark for asserting ‘Carbon Integrity’ Claims. It’s also an initial version of an added claim, labeled ‘Scope 3 Flexibility.’

Commending VCMI’s new guidance, U.S. Special Presidential Envoy for Climate, John Kerry, stated: 

“By creating sound guardrails for the use of high-quality carbon credits, the new VCMI guidance will provide strong assurance that this finance will help deliver the greater climate action we so urgently need.”

Using the new framework and the ‘Carbon Integrity’ Claims branding, companies can now make Silver, Gold, or Platinum Claims, following the original Claims Code published in June. 

• READ MORE: Navigating the Path to Net Zero: VCMI’s Claims Code of Practice
  

It empowers companies to declare their use of high-quality carbon credits, channeling financial support toward initiatives that counteract climate change. It also showcases their efforts in surpassing science-based emissions reductions.

Fast-tracking Net Zero with High-Integrity Carbon Credits

Voluntary carbon markets (VCMs), when used properly, can increase financial resources directed toward low- and middle-income economies. They can significantly aid in achieving the Paris Agreement’s goal of limiting global warming to 1.5°C above pre-industrial levels.

Estimates suggest that if companies begin investing in VCMs as part of their net zero strategies today, over $50 billion could be unlocked by 2030. This exponential growth in VCM demand is illustrated below, going beyond 900 metric tons of carbon dioxide. 

Evidence indicates that companies engaging in these markets tend to be more ambitious and undergo faster decarbonization compared to those that do not. 

As per Ecosystem Marketplace analysis, buyers in VCMs are 1.8x more likely than non-buyers to continually reduce their footprint.

But there’s a big catch to achieve that: voluntary carbon markets must work with integrity.

That means carbon credits must genuinely represent verified reductions and removals of emissions, complying with robust environmental and social standards. Companies should use these credits in addition to—rather than as a substitute for—decarbonization efforts in their transitions to net zero. 

Claims associated with these credits must be credible and reliable. Adhering to the VCMI Claims Code, which includes the newly provided guidance, ensures the assurance of these principles.

VCMI’s Executive Director, Mark Kenber, noted the relevance and timing of the release of this new guidance. He said that as COP28 approaches, discussions about VCMs will regain prominence and that “it is important that what is discussed is the promotion of credible, and believable, climate action”. 

With the new guidelines for credible claims, companies can credibly use carbon credits and be confident in doing so.

The Scope 3 Flexibility Claim

Moreover, the VCMI has launched the beta version of a new claim – the Scope 3 Flexibility Claim. It’s a practical step to hasten corporate climate action. It permits companies to use carbon credits while scaling their internal decarbonization investments and initiatives. 

Once completed in 2024, this claim allows companies to be accountable for their Scope 3 emissions while moving toward their net zero goals by using high-quality carbon credits. Stringent measures are in place to ensure the integrity of this claim and prevent its misuse.

Scope 3 refers to the indirect emissions from the company’s value chain. 

• READ MORE: What are Scope 3 Emissions and Why Disclosure is Important?
  

According to MSCI Carbon Markets, about $19 billion could be mobilized if companies used the credits to fill the emissions gap between their scope 3 reductions targets and current emissions.

VCMI has established guardrails to further promote integrity in the new claim and prevent greenwashing, including: 

Making the First VCMI Claims

The launch of the ‘Carbon Integrity’ brand and the MRA Framework is a significant milestone, enabling companies to initiate their first VCMI claims.

The ‘Carbon Integrity’ Claims is a distinct brand for such claims with a tagline “accelerating global net zero”. They signify that corporations are actively propelling the achievement of that goal. 

The brand showcases a unique mark used across the Carbon Integrity Claims, with variations denoting the type of Claim—Silver, Gold, or Platinum. 

The newly released guidelines aim to assist companies in effectively communicating their attainment of Carbon Integrity Claims.

On the other hand, the new MRA Framework serves as a mechanism for companies to substantiate their claims. Under this framework, companies provide details satisfying the Claims Code’s Foundational Criteria, setting the standard for optimal corporate climate action. 

Additionally, companies must disclose essential information concerning the carbon credits used to support their claims. This information will then undergo independent verification by a third party, reinforcing the credibility of the Carbon Integrity Claims.

Consequently, the MRA Framework forms the foundation of authority that upholds the authenticity and credibility of Carbon Integrity Claims within the VCMI framework.

The VCMI Claims Code of Practice serves as a rulebook outlining how companies can ethically use carbon credits within credible, science-aligned pathways toward achieving net zero decarbonization. By establishing this guidance, VCMI aims to cultivate trust and bolster confidence in how companies participate in voluntary carbon credit markets. 

• RELATED: ICVCM and VCMI Team Up to Create High-Integrity Voluntary Carbon Market

Verra, a nonprofit that works on climate action and verifies carbon credits, has introduced a new way to protect forests. This method, which is under the Verified Carbon Standard (VCS) program, is a big change in how they measure the impact of activities that help keep forests safe and decrease the amount of greenhouse gasses (GHG) they produce. 

The new approach also matches the rules set by countries in their plans to lower emissions under the Paris Agreement. As such, it opens doors for more global investment in safeguarding nature.

Redefining REDD Methodology for Enhanced Quality and Alignment

The new REDD methodology involves two essential firsts for Verra:

• A new approach to the baseline-setting process that decreases the potential for conflict of interest and adds greater quality control; and
• Aligns key features of forest projects with global and government action for the first time.

Toby Janson-Smith, Verra’s Chief Program Development and Innovation Officer, emphasized the importance of forests in meeting our global climate goals. He noted that deforestation causes about ⅕ of the world’s GHG emissions, further adding that:

“…carbon markets are the best and most readily available tool we have for forest protection. Today marks a substantial advancement for ensuring the integrity of REDD and supporting the scaling up of these critical activities.” 

This new way of working has been in progress since 2020 and focuses on REDD. It means “Reducing Emissions from Deforestation and Forest Degradation”. 

REDD covers various activities, from stopping illegal logging to helping forest communities find other ways to make a living. This system has safeguarded large areas of forests worldwide and directed millions of dollars to communities in developing countries that take care of these forests.

• READ MORE: What is REDD+? Development, Issues, and Solutions
  

Under this new methodology, Verra will handle the process of setting the baselines for measuring the impact of REDD activities. They will use specific data and a strong process to estimate the expected deforestation in an area. Advanced remote-sensing technologies and a robust risk assessment will be used to achieve accurate calculations. 

This would help ensure that the number of reduced emissions verified from all projects in an area matches the overall measurement for that region. Such an approach brings consistency, lessens possible conflicts of interest, improves quality control, and better supports government actions.

Empowering Carbon Markets with High-Integrity Forest Projects

A senior director for Verra’s REDD+ program, Naomi Swickard, emphasized the role of carbon markets in ensuring that forest projects “deliver nationally aligned high-integrity credits”. She added that it assures buyers that their contributions truly count towards climate action while benefiting biodiversity and local communities. 

Overall, it will boost the value of REDD+ projects in carbon credit markets.

• In 2022, more than 400 million REDD+ credits have been issued on the VCM, accounting for a quarter of total credits issued in the market.

For those new to the space, Verra’s REDD+ projects were scrutinized by a team of investigative journalists at the beginning of the year. They claimed that the carbon credits from those projects likely don’t represent real emission reductions.

Verra responded that their findings are incorrect because their studies miscalculate the impact of the organization’s forest projects. 

• READ MORE: Do Deforestation Projects Really Reduce Carbon?

The newly released REDD+ methodology is the outcome of teamwork and agreement among experts and stakeholders in the carbon market. According to Verra, it’s a work among co-authors, including Tim Pearson of GreenCollar, Kevin Brown and Sarah Walker of the Wildlife Conservation Society, Till Neeff, Simon Koenig of Climate Focus, and Manuel Estrada. 

What’s Next?

There would also be an allocation tool soon to be launched that will complement the new methodology. 

Verra has outlined a clear plan for how current Avoided Unplanned Deforestation (AUD) projects will transition to this new methodology. The roadmap also details what the transition process will involve. Here’s an important piece of information about the transition. 

Moreover, Verra will provide a route to Core Carbon Principles (CCP) labeling under the Integrity Council for Voluntary Carbon Markets (ICVCM) for previously verified emission reductions and issued VCS carbon credits. 

This will happen once the VCS program is evaluated by ICVCM as CCP-Eligible and it’s recognized in a CCP-Approved category. This pathway will allow project initiators to voluntarily switch their projects to the new methodology and adjust previous project calculations accordingly. 

Detailed information about this transition concerning various methodologies will be available in the upcoming months.

Verra’s new REDD+ methodology marks a pivotal moment in safeguarding forests and reducing global GHG emissions. This groundbreaking approach not only enhances quality control but also fosters greater confidence in carbon markets, driving investments towards nature preservation and supporting climate action.

• READ MORE: Is REDD+ Dead? A Deep Dive into the Flaws and Recommendations for REDD+ Project Methodologies

The Ministry of Ecology and Environment (MEE) in China released guidelines signalling the revival of the domestic voluntary carbon market (VCM), alongside revealing the rules for account registration, giving final touches on the market’s reboot.

China’s VCM, known as China Certified Emission Reduction (CCER), restarted after a six-year hiatus. The market had been paused since 2017 for new project registrations while the government sought to strengthen regulatory frameworks.

The Role of China’s Voluntary Carbon Market

China introduced its national compliance emissions trading system (ETS) in 2021, being one of the first Asian countries to do so. The world’s largest in terms of emissions covered, China’s ETS is estimated to account for >40% of its carbon emissions. This footprint is largely from its power sector. 

After the completion of the first compliance period for China’s ETS, the government has been preparing to relaunch its CCER.

• READ MORE: China Ready to Reboot Carbon Scheme

The discontinuation of the CCER plan in 2017 was due to low trading volumes and inadequate carbon audit standards. With the establishment of China’s national ETS, the revival of the CCER system gained momentum, aiming to address previous shortcomings and bolster carbon reduction efforts.

Under CCER, carbon emitters compensate credit-holding entities, such as renewable energy producers, for their credits. These voluntary CCER credits allow companies within the compliance markets, ETS, to offset their emissions.

They can be used to cover shortfalls in China Emissions Allowances (CEAs) or as tradable credits within the national ETS. But their use for offsetting emissions is restricted to only 5% of emissions exceeding the national ETS targets. 

Earlier this year, the MEE introduced new legislation and approved 4 methodologies for CCER credit issuance, clearing the path for new projects and supplies to enter the market. The Beijing Green Exchange, to host the trading platform for CCER credits, also issued rules for CCER trading and settlement.

VCM Complementing the Compliance Market

China’s VCM reopening may increase supplies for compliance market companies, allowing them to use the credits to offset their emissions. 

Since 2021, the compliance carbon price hit a record of $10.12/mtCO2e on August 18, surpassing the $10/mtCO2e mark for the first time. This ETS price traded 4x – 5x that of international voluntary carbon prices, partly due to the government tightening policy and resolving compliance problems.  

Moreover, the increasing awareness of climate issues among the public might lead to tangible policy changes and a gradual transition in the business approaches of state-owned enterprises towards decarbonization. These businesses have also begun to manage their carbon assets strategically like physical assets. 

However, some experts speculate that the availability of government-backed CCER registry credits may reduce voluntary carbon credit supplies from China in the international market. This shift could be due to more favor on government-backed credits, which could have higher prices compared to VCM credits. 

Go here for the most recent China ETS prices. 

Per S&P Global Commodity Insights, nearly 21% of VCM credits issued globally in Q1 of 2023 came from China. This figure emphasizes the nation’s major role in the international carbon credit market. 

New Rules for CCER Credits Trading 

With the new guidance from the MEE, a project would be qualified to generate CCER credits by meeting the following criteria:

• Perform a comprehensive and accurate emission reductions accounting;
• Estimations of emission reductions must be conservative;
• Transparent disclosure of a project’s information; and
• Not registered twice under other ETS.

The MEE-approved methodologies include forestation, mangrove cultivation, solar thermal power and grid-connected offshore wind power projects. But there are other projects that can also potentially participate in CCER credits trading, including:

• Carbon capture, utilization, and storage (CCUS)
• Transportation
• Sustainable agriculture
• Improved efficiency in power generation
• Methane mitigation 
• Waste treatment
• Industrial production

In terms of registration, trading, and settlement of CCER credits, the new rules set no restrictions on who can participate. Businesses under the compliance carbon market, project developers, and other trading entities can trade CCER credits. 

According to the Beijing exchange, which will solely manage and publish all trading information, forms of trading include the following:

• Listed transactions
• Block trades
• One-way bidding

For carbon credit price fluctuations, changes should not go beyond 10% above or below the base price for listed transactions. Base price refers to the weighted average price in the previous trading period. For block trades, price changes should be limited to 30% above or below the base price. 

However, there’s currently no clear indication on how a foreign investor can engage in China’s domestic carbon markets.

Ultimately, non-public trading is illegal and strictly not allowed to disclose such information for CCER credits trading. Similar measures were published by the host of the Chinese compliance carbon market to avoid leakage of information. 

Despite these measures, the official timeline for the CCER market’s restart has yet to be announced by the MEE. Yet, their introduction indicates the readiness of the CCER market for a prompt relaunch, aiding the biggest polluter to lower its towering carbon emissions.

• READ MORE: China’s CO2 Emissions Up 4% in Q1 2023, Hit a Record High
  

About 50% of the Canada Growth Fund for clean technology investments is allocated for special contracts aimed to bolster companies’ confidence in making substantial initiatives to reduce their greenhouse gas emissions.

Finance Minister Chrystia Freeland said that nearly half of the $15-billion Fund will be for carbon contracts for difference (CCfD). She confirmed in her recent fall economic update that up to $7 billion will be allocated for CCfD. 

What are Carbon Contracts for Difference? 

The Canada Growth Fund employs carbon contracts for difference as a financial mechanism to support clean growth projects. These contracts encompass future carbon pricing, offering businesses predictability and mitigating risks associated with crucial emissions reduction initiatives. 

• RELATED: Canadian Gov’t Sets out $83B for Clean Investment Tax Credits
  

CCfDs recognize that companies base their investment decisions on anticipated carbon pricing over several years to curb emissions. Such investments are deemed viable if they cost less than what the company would otherwise pay for the price of carbon in the absence of the technology.

• In essence, the contracts serve as an insurance policy of sorts against the carbon price going down or being eliminated, making the clean tech investments less risky.

For over a year, Freeland has been considering CCfDs, especially as major energy firms seek further assistance to maintain competitiveness amid substantial subsidies provided by the U.S. Inflation Reduction Act. She specifically remarked that:

“We are in a race, and we are committed to owning the podium… This is a plan to attract investment. It is a plan for the economic transformation, for the industrial transformation.”

Since Budget 2023, the federal government has engaged in consultations to develop an extensive framework for CCfD, complementing the offerings of the Canada Growth Fund. 

Additionally, federal accounting bodies have been exploring the accounting treatment for broad-based carbon contracts for difference. Contracts featuring elevated strike prices may pose substantial fiscal risks for the government, requiring upfront acknowledgment of potential costs.

Despite this, experts voiced disappointment over the absence of a clear framework for the swift execution of these agreements. 

But for many, the carbon contracts might serve as the last piece needed by major oilsands companies to build large-scale carbon capture and storage projects. These initiatives are vital for Canada to have any hope of achieving its emissions targets. 

Canada’s Investment Tax Credits for Carbon Capture

Linked to the Canada Growth Fund updates is the investment incentives targeting clean technology and emissions reduction projects. 

Update on carbon capture and storage tax credits is highly anticipated.

• RELATED: Canada Reveals $2.6B Carbon Capture Tax Credit

The Pathways Alliance, a coalition of major oilsands companies in Canada, has been pursuing these projects. But they have sought more support beyond what the new tax credit for the technology provides.

The government has provided an outline on the investment tax credits, setting a timeline for delivery and implementation. 

Though the oilsands group praised the proposed carbon capture incentives, they highlighted the need to provide clear policy details. 

Meanwhile, Alberta expressed concern over the extended timeline in finalizing the tax incentives for carbon capture projects. The tax credits were initially announced 2 years ago. 

According to Alberta’s Energy Minister, they have lost 3 construction years due to federal delays in executing the incentive programs. 

However, a non-profit executive emphasized that carbon contracts announcement has the potential to really drive low-carbon economic growth in Canada. He believes that CCfDs could launch the best industrial emissions reduction projects, making the country a destination for clean-tech investments. 

Sustaining A Robust Carbon Credit Market

The Liberals’ carbon pricing policy has been a subject of constant political contention, facing persistent criticism from the Conservative party. The former’s decision to stop the carbon price increase for 3 years on home heating oil sparked debate. 

• READ MORE: Canada Faces 2 Carbon Issues: Shaky Carbon Tax and Missed Emissions Goal
  

The recent fall update hinted at progress on previously announced tax credits for transitioning to clean technology. This indicates the forthcoming legislation to establish tax credits for CCS and clean technology in the coming weeks. 

It’s only in the summer of 2023 that the Canada Growth Fund was launched, initiating its operations aimed at deploying various financial instruments to reduce risks and enhance private investment in low-carbon projects, technologies, businesses, and supply chains. Engaging with >150 market participants, the fund has curated a portfolio of projects spanning crucial sectors within the clean economy. These include carbon capture, hydrogen, biofuels, critical minerals, and clean technology.

It reached a milestone last month, as the federal government announced its inaugural investment of $90 million in Eavor Technologies Inc., a geothermal energy company based in Calgary. 

The federal government will continue to explore further avenues to offer businesses assurance regarding the trajectory of carbon pricing. Through Carbon Contracts for Difference, the Canada Growth Fund aims to bolster companies’ confidence in reducing greenhouse gas emissions. This financial mechanism can help sustain a robust carbon credit market in the country, fostering a low-carbon economy. 

The newly appointed President of the World Bank, Ajay Banga, unveiled plans to launch a mechanism for certifying forest carbon credits in the coming months. His mission is to revolutionize the bank’s operations while enhancing the credibility and transparency of voluntary carbon markets.

Banga emphasized the urgent need to redirect resources from affluent nations to less prosperous regions to address climate-related challenges. 

In his address to a substantial audience at the Singapore FinTech Festival, he stressed that achieving this goal cannot solely rely on taxation or calls for financial contributions from wealthier countries due to political barriers. Instead, Banga proposed that reinforcing the trustworthiness of voluntary carbon markets holds the key.

Revamping Forest Carbon Credits for Credibility

The World Bank’s imminent certification mechanism for the forestry sector aims to establish reliable carbon credits. It also seeks to ensure proper pricing and direct resources appropriately.

Banga highlighted the significance of incorporating safeguards against deforestation and misleading reforestation practices to enhance the credibility of these markets. 

During a conversation with Ravi Menon, the head of Singapore’s central bank, Banga emphasized that endorsing certified green credits could potentially streamline the carbon pricing process. 

This strategy is meant to facilitate the flow of funds from companies and investors in developed nations to developing countries. The latter often provide the forest carbon credits that rich nations are buying.

Carbon credits have been a mechanism for companies and governments to mitigate greenhouse gas emissions. However, recent incidents such as the case with South Pole, a major carbon offsets player, have tainted the industry’s reputation. 

Renat Heuberger’s exit as South Pole’s CEO followed accusations that the company exaggerated the climate impact of its products. Ajay Banga’s initiatives aim to address such credibility issues and instill trust in the carbon credit markets.

• READ MORE: South Pole Cuts Ties with Zimbabwe Carbon Offset Project Kariba

It’s important to note that major companies are also trying to rebuild confidence in these markets. Large asset managers and investors such as Manulife and Stafford Capital have raised millions of dollars in closing their forest carbon credit funds. Also, the likes of Oak Hill Advisors are also spending billions to reduce logging and boost forest carbon deals.

Redefining World Bank’s Focus

Ajay Banga’s leadership at the World Bank has introduced innovative proposals. The major one is expanding the institution’s focus on poverty alleviation to address urgent global issues like climate change. 

During his address at the FinTech Festival, Banga advocated for the repurposing of subsidies that contribute to environmental harm. He highlighted the necessity to redirect subsidies, which presently support fossil fuels, towards initiatives that combat climate change. 

Emphasizing the significance of allocating resources more thoughtfully, he expressed the need to reconsider how public funds are utilized, saying that:

“Repurposing these subsidies can be enormously helpful in the fight on climate…We must find a better way to spread the peanut butter.” 

According to a World Bank report, the global expenditure on sectors like agriculture, fishing, and fossil fuels amounts to a staggering $1.25 trillion annually—equivalent to the size of a major economy such as Mexico. 

Banga also stressed the role of multilateral development banks (MDBs), including the World Bank, in mitigating risks associated with climate-related projects. He proposed the idea of absorbing initial losses from projects like wind and solar, making them more appealing to investors.

In 2022, about $61 billion of MDB climate finance was given to low-income and middle-income economies. 63% ($38 billion) of this total was for climate change mitigation finance and 37% ($22.7 billion) for adaptation finance. 

Mitigating Risks in Carbon Markets

However, Ravi Menon, Singapore’s central bank chief, cautioned that using public capital to reduce project risks has practical challenges and lacks universal acceptance. Concerns about political and foreign exchange risks could deter Western funds from investing in emerging market climate projects.

But Banga countered by underscoring the importance of MDBs in addressing regulatory risks. These financial institutions could offer risk guarantees and insurance to incentivize private investment. 

The World Bank’s insurance arm protects investments from non-commercial risks, enhancing access to funding with better financial terms. The new president believes that the bank’s expertise is crucial in this space. Their backing will bolster private sector investments.

Recently, companies like Kita Earth are also introducing insurance products to protect carbon credit purchases. This safeguard has never been more crucial in building trust to scale this essential market that helps combat climate change.

• READ MORE: Carbon Credit Purchases in Canada Are Now Protected With Kita

Backing carbon markets underscores a strategic shift in the World Bank’s role. It positions the institution as a key player in steering financial resources towards sustainable and climate-resilient initiatives while navigating the challenges associated with global investment in climate-related projects.