A 98-percent drop in the value of official UN-backed carbon credits is pushing sellers of emission offsets into the voluntary market, where prices are as much as 30 times higher.
The trend is a signal that many companies not required by law to cut their pollution are doing so anyway to bolster their corporate sustainability credentials.
Voluntary carbon credits — as opposed to the mandatory pollution-cutting regimes faced by industrial emitters in Europe and elsewhere — frequently offer benefits beyond CO2 cuts, such as reducing child labor, improving health and lowering energy costs in developing countries. The additional benefits, found only in non-UN certification programs, help companies claim they are doing more to make themselves and the world “sustainable.”
“In the voluntary market, the project itself and the story behind it are almost more important than the price,” said Nathan Wimble, commercial director at the CarbonNeutral Company, a London-based voluntary offset seller. “People want to see additional benefits from an offset project, such as social, economic, sustainability and biodiversity.”
You don’t see those benefits with a typical UN offset, he said.
The UN’s Clean Development Mechanism has registered 6,700 individual projects that together are expected to generate more than 1.9 billion one-ton carbon offsets by 2020, according to a May 29 World Bank-commissioned report. That’s at least 800 million fewer tons than the bank estimated the previous year. What’s more, it’s also at least 300 million tons greater than the estimated demand for credits in 2020.
Voluntary credits are generated when a certifying organization, such as the Gold Standard or the Voluntary Carbon Standard (VCS), invest in projects that support the deployment of low-carbon technology or energy efficiency measures. These initiatives consequently reduce pollution below the business-as-usual level that would be expected without them. The reductions are then sold to companies.
The Gold Standard and the VCS have certified more than 1,750 projects and created almost 170 million credits since 2003. Gold Standard offsets can earn from 8 to 12 euros a ton. VCS sells credits from as little as $1 to $8 a ton, depending on the project type, the country and the methodology employed, according to Gareth Turner, a voluntary offset broker at Armajaro Securities Ltd. in London. UN credits for December delivery were at 43 euro cents today on London’s ICE Futures Europe exchange.
The CarbonNeutral Company acquires certified voluntary offsets from projects around the world, which it packages into offset portfolios for corporate clients including Avis Budget Group Inc., Tata Steel Ltd., British Sky Broadcasting Group plc and Thomson Travel International.
“I think most people hope that there will be a revival in the CER market” and want to keep their UN registration, said Renat Heuberger, chief executive officer of South Pole Carbon Asset Management Ltd., a carbon offset developer and aggregator in Zurich. “Selling CERs to voluntary buyers is probably going to be easier than re-registering” an entire carbon-reduction project with a voluntary market.
Analysis and commentary on The Grid are the views of the author and don’t necessarily reflect the views of Bloomberg News.
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