June 2024

Welcome to the June 2024 edition of Carbon Compass. This monthly email provides a snapshot of our wider market intelligence offering. Request a demo to find out more. 

Was this newsletter forwarded to you? Sign up here.

This month: You may notice we have a new look! We are very excited to present the new Abatable brand, marking the next phase in our growth as a people-centric, impact-driven technology company. You can see more on our new website and read all about it in our Abatable news section below.

In our new livery this month we take a deep dive into policy – our Policy Manager Greg Lydka Morris reports from the intersessional Article 6 talks in Bonn, we look at the implications of Singapore’s recent Article 6 agreement with Ghana, and we note the increasing convergence of compliance and voluntary markets around the world.

Elsewhere we cover the news that the first CCP-approved methodologies have been announced, in line with our CCP forecast.

We hope you enjoy the newsletter and the new Abatable.

IC-VCM announces the first CCP-approved methodologies and credits


What’s happening? The Integrity Council for the Voluntary Carbon Market (IC-VCM) has announced the first carbon-crediting methodologies to comply with its Core Carbon Principles (CCPs), six months after opening its doors for submissions. Following the announcement, there are now 27 million CCP-eligible credits with the new stamp of integrity, issued from methodologies in the 'Ozone-Depleting Substances (ODS)' and 'Landfill Gas and Utilisation' categories.

What to remember: The approvals were forecasted by Abatable in March as part of our CCP-likelihood analysis, with us assigning a high likelihood of CCP-eligibility to all seven of the now-approved methodologies. Among the approvals, landfill gas projects account for more than half of the initial CCP-approved credits, recognised for their high-integrity approach towards greenhouse gas quantification.

Some of the market’s most popular project types, including REDD+, jurisdictional REDD+ and clean cookstoves, are still under assessment, with outcomes expected in the coming months. The IC-VCM still has 27 additional categories to assess, representing over half of the market.

Potential implications: Abatable anticipates that there will be an oversupply of credits that are either unlikely to obtain the CCP label or which have been excluded from CCP consideration by carbon credit registries. With buyer preferences expected to favour CCP-labelled credits due to greater integrity, we could see significant price bifurcation with CCP-stamped credits commanding a premium.

However, it is still too early for a price premium on the new CCP-labelled credits to have emerged. We expect greater market shifts when CCP announcements pertain to more dominant project types in terms of both historic issuances and current demand: REDD, nature-based removals, and engineered solutions.

Get in touch to learn more about Abatable’s complete CCP forecast, where we assess the likelihood of all submitted methodologies receiving a CCP label.

Also covered this month in our full market intelligence subscriber update:

- Brazil integrates CORSIA into law and establishes non-compliance penalties

- US government endorses high-integrity carbon markets

Singapore signs second Article 6.2 agreement with Ghana – Abatable Analysis

Source: Abatable preliminary analysis, leveraging Singapore’s current Overall Eligibility List and applying it to Ghana. Available (vintages post-2021) and forecasted supply data from registered projects are aggregated from VCS, Gold Standard, ACR, and CAR. Analysis excludes available supply from Verra’s AMS-II.G. as it was excluded as a standalone methodology in July 2023, and forecasted supply from VMR0006 as the methodology was published in July 2023 after the cutoff for Singapore eligibility (methodologies published pre-March 2023). Data as of June 2024.

Singapore has signed a second Article 6.2 Implementation Agreement with Ghana, which we preliminarily estimate only increases the available supply for companies to use against Singapore’s carbon tax from zero available credits to 295,000 tonnes. The supply is from Gold Standard’s cookstove methodology AMS-II.G., however future issuances are expected from other cookstove methodologies as well as from VM0033, a VCS wetland, peatland and restoration methodology. 

The annual demand from Singapore’s carbon tax is capped at just over two million tonnes per year. Today’s available supply from Ghana represents about 15% of that annual cap. The forecasted supply from existing eligible projects would only be enough for the next one to two years, ignoring other demand sources for Ghana credits. There is therefore a significant opportunity for eligible projects to be developed in Ghana for use in Singapore.

Our analysis leverages Singapore’s Overall Eligibility List, which is set to be reviewed yearly. Under the country’s carbon tax rules, carbon tax-liable companies can use eligible international carbon credits to offset up to 5% of their taxable emissions. Singapore is expected to soon sign further implementation agreements with Vietnam, Bhutan, and Paraguay.

Limited progress on Article 6 at Bonn

Our Policy Manager Greg Lydka Morris was at the 60th session of the Subsidiary Body for Scientific and Technological Advice (SBSTA), which took place in Bonn at the beginning of June.

The SBSTA meeting, a crucial touch point between COPs, saw Article 6.2 and 6.4 sessions ending with bracketed draft conclusions and draft texts with numerous options to still be decided in Baku.

Issues including authorisation timing and coverage, sequencing of reporting, approval and authorisation, interoperability of registries, revocations and how to deal with emissions avoidance were discussed but were left to be decided at COP29 – or not until 2028 in the case of emissions avoidance.

Article 6 negotiations at COP28 in Dubai broke down with no final agreement reached. 

After these tensions, steady but progressive talks in Bonn may calm market nerves that the Article 6.4 mechanism is fundamentally unachievable. Despite the more conciliatory talks, the draft texts at the end of this intersessional were still laden with options left to be agreed upon in Baku, given there was no mandate for decisions here. This doesn’t bring any greater clarity to market participants and leaves a lot to be decided at a pivotal COP in November.

One negotiator we spoke to said that without the pressure for decisions, all parties were happy to have their options taken forward to COP29, but this did not guarantee that talks would be straightforward and that the issues of Dubai had been moved on from. There are still many issues to be resolved and eligible methodologies, a key issue in Dubai, was not even covered in Bonn, being left to 6.4 technical working groups to present recommendations ahead of Baku.

Shifting policies in Brazil will have mixed impact on carbon markets

Brazil’s carbon market dynamics are evolving. The enhancement of its Nationally Determined Contribution (NDC) post-Bolsonaro, the operationalisation of its Emissions Trading Scheme (ETS), and the establishment of Article 6 rules are all anticipated in the coming years as part of Brazil’s efforts to align and strengthen national climate policy. 

However despite maintaining a generally positive stance towards the voluntary carbon market, which will remain interoperable with other mechanisms, the potential approval and implementation of Brazil’s ETS could bring a shift in its market dynamics. This would introduce additional demand, but may also impose new costs and administrative burdens for developers engaging with the scheme.

Article 6, which has received comparatively less attention thus far in Brazil, is likely to gain increasing prominence in the country. This will impact projects, necessitating, at a minimum, additional registration and authorisation processes and potentially resulting in credit carve-outs to contribute to Brazil's NDC. The complicated interplay between federal and state-level autonomy in policymaking in Brazil, alongside ongoing land disputes, will be a challenge to carbon market operators for the foreseeable future.

Access Abatable’s new full policy assessment for Brazil here.

Kenya updates its carbon markets regulation

Kenya has published a third version of its Climate Change (Carbon Markets) Regulation, part of the Climate Change Act originally passed in 2023. The update includes significant new details around carbon market governance and institutional frameworks, administrative processes, and project fees.

During the application process for carbon projects in the country, developers are required to note if the project is intended to count towards an NDC. This appears to confirm that both voluntary and Article 6 projects can operate in Kenya. The regulation also makes Kenya’s Designated National Authority (DNA) responsible for providing letters of authorisation to developers for credits to be sold under Article 6 mechanisms, with a template application letter and letter of authorisation included in the schedules.

The regulation does not include a shortlist of eligible projects for Article 6, but does note that the DNA will work on the ‘rules and operationalisation’ of the processes, which paves the way for future clarity. The regulation’s Schedule 2 notes that a corresponding adjustment will be charged at a fee equivalent to US$4 per credit.

Users of the Abatable platform can access the full alert for Kenya here.

You can sign up to access Abatable's complete carbon market country profile and policy alert service here.

Compliance and voluntary markets continue to intertwine

By Greg Lydka Morris, Policy Manager

Japan has become the first country in the world to accept the use of durable carbon dioxide removals in its national emissions trading system (ETS), the Green Transformation ETS.

Japan’s ETS will be in its first voluntary phase until the end of March 2026, after which it will become compulsory. The country has already accepted the use of the two national government-operated crediting programmes, the Joint Crediting Mechanism (JCM) and the J-Credit Scheme.

Carbon removal methodologies that will now be accepted include carbon capture and utilisation (CCU), bioenergy with carbon capture and storage (BECCS), coastal blue carbon and direct air carbon capture and storage (DACCS), including from international projects, which can cover up to 5% of participating entities’ emissions.

A growing trend

The move is indicative of a growing trend towards the interoperability of carbon credits in compliance schemes. Some of the largest and most established emissions compliance schemes in the world are reassessing their position on this – with a particular focus on removal credits.

In the EU, the European Commission is set to report by 2026 on whether removal credits could be used in its ETS. This comes after the European Parliament adopted the EU’s provisional agreement on its Carbon Removals and Carbon Farming (CRCF) Regulation, which created the first EU-wide voluntary framework for certifying carbon removals.

Further, the UK this month opened a consultation on the integration of removals into its domestic ETS, emphasising the importance of durability but stating a work scope to consider all forms of removal projects.

Pluses and minuses

Implementing crediting mechanisms into compliance schemes is a positive move for carbon markets, as it creates a firmer demand signal than purely voluntary markets and will drive further investment to eligible credit types.

However, beyond simply integrating certain credit types, jurisdictions are increasingly creating their own frameworks and methodologies to control those quality aspects that are most prescient to them. Alongside Japan using its J-Credit and Joint Crediting Mechanism credits, it is using a domestic J-Blue methodology for blue carbon. It will assess international removal project applications into its ETS on a case-by-case basis against its own framework, rather than approve international standards.

Meanwhile, the EU would likely only consider projects eligible under its CRCF.

If this approach becomes widespread, it will nationalise standards, risking the further heterogenisation of quality and fragmentation of an already complex market landscape. It could also delegitimise voluntary and Article 6.4 standards, and limit scalability.

A new chapter for Abatable

As we mentioned at the start of this newsletter, we're very proud to unveil the new Abatable. A north star to guide us in the next phase of growth as a people-centric, impact-driven technology company.

Since Abatable was founded three years ago, the voluntary carbon market has built the solutions, tools and guidelines to facilitate credible and transformative climate action. It’s worked hard to increase transparency, accountability and integrity.

We now urgently need planetary-scale adoption of the VCM.

The new Abatable is about shining a light to enable companies to navigate this complex market for the benefit of the Earth.

It represents an alignment of our mission – the coming together of our focus to empower those organisations so vital to this transition. It is our recommitment to leading the generational change required to build a thriving future for climate, nature, and people.

Watch our launch video above, and read more from our CEO and Co-Founder Valerio Magliulo on what the next chapter for Abatable means here.

Abatable is entering a new phase of growth and is hiring for several exciting new roles, including:

Head of Origination and Structuring (Growth)

Origination Manager (Growth)

Growth Marketing Manager (Growth)

Product Marketing Manager (Growth)

Product Designer (Product)

Data Science Lead / Senior Data Scientist (Product)

Find out more about how to apply here!

The Abatable Carbon Compass Newsletter provides a snapshot of Abatable's carbon market intelligence offering. To access more premium content, visit our website or request a demo.

About Abatable

Abatable is a market intelligence and carbon credit sourcing platform for the voluntary carbon market. Our technology platform connects companies and climate investors to the largest network of climate projects across the globe. We exist to help every organisation build a thriving future for climate, nature and people. Find out more at abatable.com

Legal

This email briefing has been prepared for general informational purposes only and is not intended to be relied upon as financial, accounting, tax, legal or other professional advice. Please refer to your advisors for specific advice.

© Zero Imprint Limited.