Like any other goods or services, prices of carbon credits are established by the junction of supply and demand. Contrary to the regulated market where the supply and demand of carbon credit are regulated through complex regulations, the supply and demand of voluntary carbon credits respond to free market transactions.
Like any other goods or services, prices of carbon credits are established by the junction of supply and demand. Contrary to the regulated market where the supply and demand of carbon credit are regulated through complex regulations, the supply and demand of voluntary carbon credits respond to free market transactions.Let’s understand the demand and supply first and second understand the price trend.
The supply
The supply of voluntary carbon credits (VCU) covers a large spectrum of quality. There are standards that controls the legitimacy of the credits based on the verification of the reductions, the additionally, the registration of the credits and single use of the credits. There are standards with regional coverage and others with international presence. We are considering here only the carbon credits based on internationally recognized standards. In London, on May the 9th 2013, Environmental Finance and Carbon Finance magazines have named Verified Carbon Standard again as the preferred provider of the methodologies and standards underpinning voluntary carbon projects in their fourth annual rankings of the Voluntary Carbon Market. In 2012, 61% of the voluntary credits are under VCS. According to the State of the Voluntary Market 2013 by Ecosystem marketplace, APX was identified as the registry of 52% of the issued offsets. The number of projects certified under internationally known standards is increasing steadily but are still limited in quantity since the costs of registering and verifying a project under these standards impose strictness which guarantees quality.
The demand
The demand for VCU is mostly motivated by a voluntary decision to act for the preservation of the environment. Ecosystem marketplace did a survey from respondent from 320 organizations for the State of the Voluntary Market 2013, this survey identified that the motivation of the purchases of VCU en 2012 were the following:
• Corporate Social Responsibility: 34%
• Demonstrating climate leadership: 26%
• Pre-compliance: 19%
• PR/Branding : 10%
• Climate driven mission/ philanthropy: 9%
This demonstrates that 60% are motivated by CSR or leadership. 81% base their decision on purely voluntary decisions while only 19% are motivated by the regulation compliance expectations.
Furthermore, Eokom Research published in March 2013 a study including the results of a survey with medium-sized enterprises from Germany, Austria and Switzerland, Approximately 70 per cent of the CEOs surveyed believe that acting responsibly is also financially beneficial. This is the basis for the transactions on the voluntary market and is the driving force that establishes the price demand for purchase of VCU.
The price trend
Prices vary significantly for individual transactions due to variables such as transaction size, standards, type of project and sellers in the supply chain. The State of the Voluntary Carbon Markets 2012 indicates that the five highest-earning (by average credit price) project type on the market were predominantly renewable energy activities: solar ($33.8/t CO2e), biomass ($12/t CO2e), methane-other ($9/t CO2e), energy efficiency ($9.2/t CO2e) and wind ($8.7/t CO2e).” These findings are based on voluntary reported data from 200 offset suppliers, as well as exchange and registries. The reporting represents transactions of 2009 which was in reaction of the economic recession making 2009 a buyer’s market.
In summary, analysis of transactions compiled by independent organisations for the past years demonstrate an average price of $16/Mt CO2e, with the highest prices for quality credits; quality being based on projects having better social impact, being energy efficiency and landfill avoidance and in North America. The full range of prices expend from 0.60$ to 120$ per VCU. Prices are directly related to quality. Quality is first measured on social impact of the project and also on variables such as standard and registry used, location, type of reductions. There is strong evidence that the voluntary carbon credit prices will grow over the coming years.
Serge Bujold, Executive Advisor, Projext Management, Will Solutions