New Carbon Finance "Voluntary Carbon Index" (VCI) shows VER prices have increased 26% in 2008 and highlights increasing interest in the pre-compliance market
Throughout 2008 the price of voluntary carbon credits (Verified Emission Reductions or VERs) continues its upward trend with VER transactions in July-August 2008 averaging $6.3/tCO2e, up by 26% on 2007 prices and 60% on 2006 prices. These figures are obtained from the recently launched New Carbon Finance "Voluntary Carbon Index (VCI)", part of our dedicated research into the regulatory developments of the North American carbon markets.
The VCI was created to track intra-annual price developments in the over-the-counter market (OTC) secondary VER Market, ie prices at the project origination and wholesale distribution levels. The index is based on confidential information from key players in the market. New Carbon Finance tracked close to 3 million tonnes of carbon credits in July and August 2008 worth about $18.9 million at an average of $6.3 per tonne.
This edition of the VCI has identified several key trends in the voluntary carbon market. These include:
• The average price of a project-level "secondary VER" rose 26% in the first half of 2008, from an average of $5.0/t in 2007 to $6.3/t. This is significantly higher than the voluntary credits exchanged on the Chicago Climate Exchange, which traded at an average of $3.9/t during those months and have now fallen to $2.5/t.
• The ascent of the Voluntary Carbon Standard (VCS) as the most popular and dominant standard in the markets has solidified with most volumes transacted through this standard. VCS credits have seen a 33% price increase ($7.3/t) compared to their 2007 average value ($5.5/t).
• Gold Standard (GS) VERs continue to be the "premium credit" commanding the highest average price at $15.8/t, up 40%, and the standard developed by the Californian Climate Action Registry (CCAR) is also quickly gaining ground with prices 71% above the average VER price ($10.8/t), likely due to demand from pre-compliance buyers.
• Project type is another important price determinant. As a sign of the increasing growth of the so-called pre-compliance market, methane projects accounted for the majority of offsets transacted in July and August and can currently obtain the highest prices. They have increased by 12% ($7.3/t) from their 2007 price of $6.5/t. Methane projects are particularly interesting as they are relatively inexpensive to develop and are most likely to be eligible in a future compliance programme.
• Prices for industrial gas and renewable energy credits have remained comparatively flat: renewable energy VERs traded at $6.7/t and industrial gas at $3.6/t. Forestry VERs have increased by 24% ($5.2/t) from their 2007 price of $4.2/t, likely attributable to the increased use of standards such as the CCB, CCAR and VCS.
"Confirming trends that were initiated in 2007 we're seeing significant price separation among credits verified to the different standards, suggesting the development of a three-tier market with the Gold Standard and CCAR in the upper-tier, the Voluntary Carbon Standard in the middle-tier, and various other standards in the lowest-tier," explained Thomas Marcello, an Analyst at New Carbon Finance
"The launch of the New Carbon Finance Voluntary Carbon Index is a novel effort to provide more transparency in the fast-growing voluntary market. The regular tracking of price trends by project type and standard will give market participants the essential information to understand short to medium-term price drivers. With regulatory action at state or federal level imminent the index will give essential insight into the growth and preferences of the increasingly important pre-compliance market" said Milo Sjardin, Head of North America at New Carbon Finance.
Further analysis and detailed charts can be obtained from our more comprehensive "Voluntary Carbon Index Report". The VCI and the report form part of our dedicated research into the development of the North American carbon markets. To find out more about becoming a subscriber, please contact firstname.lastname@example.org. A complimentary edition of this report can be downloaded from our website: http://www.newcarbonfinance.com/?p=about&i=freereports
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Thomas Marcello, Carbon Analyst
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