Sliced: IMPACT Q1 Updates

Listen to this Sliced essay on any of the streaming platforms below.

At the end of 2023, we introduced our IMPACT framework, a strategic acronym representing key components influencing the development and speed of climate finance, carbon markets, and impact investing. We designed this framework to steer our evaluation of these areas on a regular basis. We applied it during our review of 2023 and revisited it in early 2024 to make our forecasts for the year.

Now, are putting it to work again to assess the first quarter of 2024.

IMPACT stands for:

Integrity, Momentum, Prices, Achievement, Collaboration, and Targets.

I = INTEGRITY

As predicted, the progress towards market integrity is moving full speed ahead.

At the end of January, the Integrity Council for the Voluntary Carbon Market (ICVCM) announced they had reached a major milestone, having initiated the assessment of over 100 active carbon credit methodologies to ensure compliance with their Core Carbon Principles (CCPs). The methodologies have been organized into 36 distinct categories. ICVCM plans to start announcing initial decisions by the end of this month.

On the demand side of the market, the Voluntary Carbon Markets Integrity (VCMI) initiative and the United Nations Development Programme (UNDP) recently announced their alliance intended to support the development and promotion of high-integrity carbon projects, aligning with the Paris Agreement and the United Nations’ Sustainable Development Goals. Their agreement also aims to improve market access for developing countries and strengthen collaborations between the public and private sectors.

Our prediction for Q2 of 2024 remains unchanged – the current integrity initiatives will continue their progress, and we might even see more high-profile partnerships form.

M = MOMENTUM

For carbon and climate finance accounting and disclosures, momentum accelerated, then decelerated. Following years of development, the United States Securities and Exchange Commission (SEC) finally approved a new federal regulation mandating publicly traded companies to disclose information related to climate change and how a warming planet poses risks to their business. Additionally, the regulation mandates that some companies report their direct carbon dioxide emissions (except Scope 3 emissions).

And then almost immediately, a federal court stopped the rule dead in its tracks (for now) after some unhappy fossil fuel companies sued. The outcome remains uncertain, yet this is a matter deserving of continued attention.

P = PRICES

We predicted that the focus on improving the quality of carbon credits would lead to higher prices for these credits. Following a year in 2023 that was awash in low prices, we anticipated that the introduction of CCP-tagged (Core Carbon Principles) credits would command premium pricing in the market. No credits have been marked with CCP labels yet, so it’s too early to see how that pans out.

Carbon markets have been recently experiencing a mixed bag of results. Notably, the Regional Greenhouse Gas Initiative (RGGI) auction last week achieved a historic peak, with a clearance price of $16.00 for all 24.27 million allowances, the first complete sell-out of the cost containment reserve (CCR) allowance supply since 2015. RGGI is a collective effort by East Coast states including Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia.

In Europe, compliance allowances from the European Union Emissions Trading System (EU ETS) have nose-dived, down 26% from the start of the year. Prices dropped from around €80 to €60/allowance.

On the voluntary side, CBL’s N-GEO voluntary market futures contracts, which are made up of nature-based offset projects from Verra, are up 34% since January, currently trading around $1.21/credit. This is nowhere near their price one year ago in January 2023, but we’re starting to see hints of recovery. Our prediction for Q2 is that prices will slowly continue to crawl up.

One noteworthy carbon credit that has been attracting significant attention lately are Biochar Carbon Removal (BCR). They are priced on average at $179 per credit. The biochar industry is poised for a six-fold expansion in production capacity by 2025. Prices are anticipated to decrease further by 2026, potentially opening the credit type up to a wider-range of buyers.

A = ACHIEVEMENT

It’s far too early to see if our prediction of COP29 in Azerbaijan finalizing an Article 6.2 resolution on cooperative implementation and monitoring the transfers of ITMOs (internationally transferred mitigation outcomes) comes to pass. We’ll have to wait until Q4 for that.

But in the meantime, Switzerland and Thailand successfully conducted the first-ever transfer of Article 6.2 carbon credits, involving the acquisition of 1,916 ITMOs by the KliK Foundation, recorded in the Swiss Emissions Trading Registry. This transaction supports the Bangkok E-Bus Program’s aim to transition Bangkok’s private e-bus fleet from internal combustion engines to electric vehicles.

C = COLLABORATION

We previously predicted that the major 2024 elections in countries including India, Indonesia, Mexico, and the USA could significantly disrupt efforts towards climate collaboration. Well, we are only three months into 2024 and there is already one major presidential election behind us, although the results are still to be determined. Indonesia held their general elections on February 14, and it appears that Prabowo Subianto is on track to take the helm, although not without controversy as two of his opponents are planning to challenge the results due to fraud allegations. If Subianto does win, things do not look promising for the country’s potential climate policies.

The official announcement for the dates of India’s 2024 General Elections has not yet been made, but they are expected to take place in April or May. Mexico scheduled its general election for June 2, while the United States has its presidential election on November 5. The results of these elections could have monumental impacts on how countries across the world decide to move forward with climate agendas.

Outside of national elections, collaboration is building for past, present, and future COP hosts. United Arab Emirates (COP28 in 2023), Azerbaijan (COP29 in 2024), and Brazil (COP30 in 2025), have formed the inaugural COP Presidencies Troika to foster enhanced cooperation and ensure continuity among the presidencies of the annual climate talks. The agreement is focused on amplifying global efforts and facilitating the upcoming phase of nationally determined contributions (NDCs).

T = TARGETS

In the corporate realm, we forecasted an ongoing trend of companies announcing commitments to climate targets, such as achieving net zero emissions, but that the realization of these targets in tangible results is likely to be less evident.

Since then, major financial firms JPMorgan Chase and State Street withdrew from Climate Action 100+, a global investor coalition dedicated to urging companies to reduce climate-harmful emissions. The two groups took nearly $14 trillion in total assets off CA100+’s table.

Regarding carbon credits, a recent survey by The Climate Board (TCB) and VCMI involving 45 companies across 10 sectors revealed that 70% of respondents indicated that the likelihood of maintaining or setting science-based targets would improve with the flexibility to use carbon credits under specific conditions. This highlights the potential for carbon credits to play a role in enabling companies to meet their climate targets.

That’s it for our Q1 IMPACT assessment.  See you again at the end of Q2 for our next one.  

Disclaimer: Hi there, you are receiving this update from Gordian Knot Strategies based on your previous engagement with us in some capacity. If you wish to unsubscribe, please use the link below, and we promise you that your contact details will be permanently removed from our distribution list. Thanks!

Want to unsubscribe?

Click here.

Want to receive the Sliced weekly dispatch?

Click here.

If you want to see more of our content, check out our monthly newsletter, Virtus.

Click here.