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Carbon markets defy downward trend

The warning signs continue to flash red for a global economy plagued by runaway inflation, new strains of COVID and falling asset prices. But voluntary carbon markets continue to exceed market expectations.

Despite the war in Ukraine and ominous signs of a potential recession, carbon credits continue to rise in value. Carbon traders see the resilience of voluntary carbon markets amid deteriorating market conditions this year as a sign that this market is achieve a new level of maturity and sophistication, according to S&P Global Commodity Insights. This positive performance follows demand optimism seen last year. In 2021, the value of voluntary carbon markets exceeded one billion dollars for the first time, according to industry group Ecosystem Marketplace. Platts CEC from S&P Global Commodity Insights, the first carbon price assessment launched on January 4, 2021, jumped 900% throughout the year.

“A key instrument in the world’s ability to combat climate change and accomplish the energy transition from fossil fuels to electrification, the voluntary carbon market will likely continue to grow in importance while providing price discovery and ease of trading for many market participants who want to verify their CO2 equivalent ton reduction,” said Jim Wiederhold, Associate Director of Commodities and Real Assets at S&P Dow Jones Indices. , in a recent report announcing the S&P GSCI Global Voluntary Carbon Liquidity Weighted, which is the premier market benchmark for the current performance of global voluntary carbon futures markets.

The growth of voluntary carbon markets could be stimulated – or hindered – by the patchwork of regulations and certifications created by government entities, stock exchanges and private partnerships.

“Will companies deliver on their climate commitments in this time of economic volatility, economic uncertainty and inflation? The evidence says yes,” said Rich Gilmore, CEO of carbon investment firm Carbon Growth Partners, during Xpansiv’s July 12 quarterly review and voluntary carbon market outlook, according to S&P Global Commodity Insights. “Unlike cryptocurrency or Bitcoin, the carbon market is backed by an existentially significant intrinsic demand for the end use of the product – a carbon credit exists to be withdrawn… Our view is that there is stable and growing demand for carbon credits to be used as a tool to reduce emissions.”

In order to build greater public confidence in the voluntary carbon market and carbon credits, Amazon aims to establish a new brand of carbon credits known as the ABACUS Verified Carbon Unit in partnership with carbon trading researchers from the University of California at Berkeley, The Nature Conservancy and other non-governmental organizations and carbon consulting firms. The ABACUS label would create a higher standard specifically for agroforestry and reforestation carbon projects and eliminate the ripple effects carbon projects can have by creating unintended emissions elsewhere, according to S&P Global Commodity Insights.

Activities that reduce emissions from deforestation and forest degradation are addressed in voluntary carbon markets under REDD+ certification, which issues carbon credits to developers who can demonstrate they have achieved set results in forest protection. But carbon markets are confused about the differences between jurisdictional REDD+ projects, which depend on government support, and stand-alone REDD+ projects, which are private initiatives, according to S&P Global Commodity Insights.

In Europe, commodity exchanges AirCarbon Exchange and European Energy Exchange last month announced their partnership with UK-based Net Zero Markets to create a global reference price for voluntary carbon credits. But last month the European Parliament also voted against a reform package that sought to realign the bloc’s carbon market with its 2030 net zero target to reduce greenhouse gas emissions by 55% below 1990 levels. Meanwhile, in Asia, Hong Kong Exchanges and Clearing Limited announced the launch of the Hong Kong International Carbon Market Council on July 5, with the intention of develop an international carbon market with cross-border trade.

Tax credits are one of primary mechanisms through which carbon capture projects attract finance. But due to political polarization and different tax regimes globally, market participants have questioned whether these tax credits are sustainable enough to fund more ambitious carbon capture projects.

“My fear is that each country will start a slightly different accounting mechanism, a a little different way of doing it“, said Renat Heuberger, managing director of carbon brokerage and project developer South Pole, in a recent interview with S&P Global Commodity Insights. “So far, the voluntary carbon market has essentially not been really affected by many policy changes because, as the name suggests, it’s a voluntary market, not a compliance market… So the risk is that well-functioning voluntary markets might even be shut down or blocked by the governments that would like to create clear rules, but face capacity and bureaucratic constraints that lead to discussions without approving anything.

Today is Friday, July 15, 2022and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

Trends in global sovereign ratings in mid-2022: geopolitical risks and inflation wear and tear in the post-pandemic recovery

Post-pandemic economic recovery continues to slow and is now even more at risk due to increased geopolitical conflict, global inflation and interest rates. After posting solid growth of 6% in 2021, we expect global economic growth to slow in 2022 to 3.6% and 3.5% in 2023. That said, rising global inflation is pushing central banks to raise interest rates to control it. However, the evolving nature of the factors pushing inflation up increases the risk of recession.

—Read the report of S&P Global Ratings

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Capital markets

Turkish banks face liquidity crunch as investors waver

Turkish banks are facing a liquidity crunch amid rising global interest rates, a situation that could accelerate an outflow of capital from investors, analysts said. As the world’s major central banks tighten monetary policy, available liquidity for emerging markets will become scarcer and more expensive, increasing rollover risks for Turkish banks, according to S&P Global Ratings.

—Read the article by S&P Global Market Intelligence

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International trade

Canadian wheat plays a bigger role in addressing food security issues during the war in Ukraine

Uncertainty about where the world will get its wheat, as the war in Ukraine drags on, opens the door for Canada to take on a bigger role in ensuring global food security. The war in Ukraine has raised concerns about future export operations from the European region and heightened expectations for Canadian exports in the 2022-23 marketing year (August-July). This comes after several years of declining Canada’s share of the global export market due to increased exports from Black Sea producers.

—Read the article by S&P Global Commodities Outlook

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ESG

Despite global economic volatility, carbon markets remain ‘stable and growing’

While volatility and uncertainty hampered the global economy in the first half of 2022, one asset class that managed to beat expectations is carbon credits – a sign that the voluntary carbon market is reaching a new level. level of maturity and sophistication, according to carbon traders. A basket of factors bogged down the global economy in the first six months of the year – Russia’s invasion of Ukraine and the resulting energy crisis, rising interest rates triggered by a high inflation and post-pandemic recovery tensions.

—Read the article by S&P Global Commodities Outlook

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Energy and raw materials

Shell CEO warns of possible energy rationing this winter in Europe

Europe could face energy rationing this winter, Shell CEO Ben van Beurden said July 14 at Aurora Energy’s Spring Forum in Oxford. Russian gas supply cuts have left much of Europe short of gas at a time when storage is usually filled before winter, fueling fears of shortages over the coming winter. The EU has warned that a complete cut off of Russian gas flows to Europe cannot be ruled out.

—Read the article by S&P Global Commodities Outlook

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Technology and media

Tech stability teeters on tough macro despite planned supply chain relief

Despite supply chain constraints, the U.S. tech sector has performed well in 2022. Information technology (IT) spending, which is highly correlated to the global GDP growth rate, is healthy, and issuers technologies benefited from higher sales and improved margins. However, risks abound due to the deteriorating macroeconomic environment, geopolitical events and their impact on supply chains, as well as widespread inflationary pressures in many parts of the world.

—Read the report of S&P Global Ratings

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