The global economic downturn has caught up with the voluntary carbon market in early 2009 sending prices and trading volumes sharply downward, according to carbon market analysts New Carbon Finance (NCF).
NCF’s bi-monthly Voluntary Carbon Index slipped almost 30 per cent in January-February with the weighted average price for wholesale
VERs falling from $7.30 to $5.20 per tonne of
CO2e. More tellingly, however, transaction volumes fell 70 per cent as demand took a hit from the worldwide recession.
Prices for voluntary market carbon credits, generally referred to as verified emissions reductions, or VERs, are very much dependent on which third-party verification standard is used. This is the main price driver and NCF has changed the methodology used to construct the index to reflect this. Average prices for VERs under each standard are then weighted according to the standards’ market share. Since the middle of 2008, the market shares used have been: Voluntary Carbon Standard (VCS) 42 per cent, the California Climate Action Reserve (CCAR) 17 per cent, the Gold Standard (GS) 14 per cent, and all other standards a combined 27 per cent.
Credits from the most popular standard, the VCS, fell 40 per cent from their November-December levels to an average of $3.70. NCF said this was likely due to a flood of credits from UN
CDM projects flowing through the market as well as an overall recession-driven drop in demand.
CCAR credits fell only 17 per cent to $6.80 on average, with prices held up by ongoing “pre-compliance” demand in the United States. Emitters there are buying carbon credits in the voluntary market in the hope of receiving credit for early action under a mandatory cap-and-trade scheme, now deemed inevitable under the Obama administration.
A VER’s project activity type is also a determinant of price and price falls were felt across the board, NCF says. Forestry credits were down 18 per cent to $6.60 on average, methane project credits fell 36 per cent to $5.10 and energy efficiency/fuel switching dropped 22 per cent to $5.20. Renewable energy credits have proved resilient, slipping just 3 per cent to $5.90.
In contrast to the sharp fall in VCS prices overall, renewable energy VCS credits fell only 2 per cent to $6.00. This average price is consistent with a $5.50 to $6.50 price range for credits in recent weeks reported by analysts MF Global. It reports VCS credits closer to $5.50 from renewable energy projects in India and China and at the higher end of the range from Latin America and elsewhere in Asia.
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