VER market flat, with forestry bright spots

The voluntary carbon market remains sluggish, hit hard by the global financial crisis and ongoing worldwide recession, but life is flickering in the forest carbon segment.

Voluntary carbon buyers are in the market but taking much longer to carry out their buying programmes knowing they are in a good position to hold out and squeeze prices down, says David Pontis, an emissions broker at Tullet Prebon. Organisations are still offsetting but the market appears to be 70 per cent sellers and 30 per cent buyers currently, Pontis said.

In 2010, the recession impact has been compounded by the failure of US cap-and-trade initiatives in Congress which had stimulated much pre-compliance “early action” activity in the voluntary market. With the chances of a federal US cap and trade bill gone for now the North American focus is on California and the Western Climate Initiative (WCI), which is due to start carbon trading among some members in 2012.

The huge but recessed Californian economy is the key and market players are sidelined awaiting the outcome of November mid-term elections. Some gubernatorial candidates – and a ballot initiative – call for the postponement of AB-32, the state’s global warming bill passed in 2006 and set to initiate emissions trading.

Worldwide, VER transaction volume is light and Tullet Prebon reports Voluntary Carbon Standard (VCS) credits for renewable energy ex-China bid at €2.50 per tonne of CO2e and offered at €3 in 2009/10 vintages. Forward VERs are bid at €3.10. Gold Standard VERs are bid at €6 and offered at €8 for 2009/10 vintages but up to €2 lower in the forwards.

In forestry, despite great interest in REDD credits for avoided deforestation, the market is yet to take off beyond a few forward transactions. Lack of firm supply is a key factor. But that may be about to change following the first issuance of REDD credits under the VCS from the Unchindille-Mapanda project in Tanzania and the believed imminent issuance of credits from the Rimba Raya project in Indonesia before the end of 2010.

Pontis says large parcels of 100,000 credits or more will hit the market from Rimba Raya with prices currently attracting bids of €5 a tonne and sellers offering at €7 in both the 2010 vintage and for forward delivery.

Another bright spot in the market appears to be in forestry VERs from New Zealand. Project developer and credit aggregator Permanent Forests International reports 250,000 high-integrity reforestation VERs have found European and North American buyers recently, at prices on a par with VCS credits. The credits are generated under New Zealand’s domestic forest sinks programme, come with a government-backed permanence covenant and are packaged for the international voluntary market.