According to the U.C. In the Berkeley Voluntary Registry Offsets Database (VROD), which aggregates evidence from the American Carbon Registry (ACR), Climate Action Reserve (CAR), Gold Standard and Verra (VCS), the largest share of credits issued in these main platforms are from Forestry and Land Use projects (41.4%), with 25.1% of these credits from REDD+ technology. Following Forestry and Land Use, are Renewable Energy projects, with wind (14.6%) and hydroelectric (10.6%) on the top of the list.

If these credits are being issued, that means there is a demand for them. What records show is that for both types of projects, retirements have been also constantly increasing over the past years, which means more companies are using these credits to support their offset claims.

An assessment made by our team shows that Forestry and Land Use projects experienced an abrupt 35.3% decrease in retirements from 2021 to 2022. In contrast, Renewable Energy projects had a 16.6% increase in retirements.

Figure 1 below shows the pattern of retirements with greater granularity by technology type.

Figure 1: Retirements (MtCO2e) - Forestry and Renewable Energy

In addition to retirements, trading volumes have also been growing. Last year, 50.2% of all retirements were from renewable energy projects, totaling 77.9 MtCO2e of retirements and USD 479.1 million, with 211.4 MtCO2e traded (until August 2022).

For Forestry and Land Use, the trading volume was 227.7 MtCO2e, 65% coming from REDD+ technologies, with a value of USD 1.32 billion. Even so, only 46.2 MtCO2e of credits were retired, representing 29.8% of the total retirements.

Renewable energy projects have known additionality risks, since in many countries these technologies are already competitive with other fossil energies. It follows that since 2019 the 

no longer accept renewable energy in developing countries, for example.

In any case, these additionality questions along with media criticism are what made consumers change their preferences to other types of technology, such as REDD+, in the last years.

One of the reasons for choosing REDD+ is precisely the fact that these projects are easily linked to the idea of protecting the environment. It is much easier to explain to consumers what a carbon credit is in conjunction with forestry conservation rather than industrial mitigation, especially if you are using credits for claiming net zero. Furthermore, REDD+ projects promise co-benefits by dealing with biodiversity and local communities.

However, recently many REDD+ projects have been facing credibility challenges. The main quality criteria that REDD+ projects encounter are proof of additionality, permanence, reliability, and consultation with stakeholders. Because of ambiguity in project baselines and potential leakage, REDD+ emission reductions can be difficult to measure; REDD+ initiatives also risk negatively impacting local populations, which is the case for recent projects in 

that were refuted for lack of consultation. The heightened media attention to these credibility risks made the commonsense "premium" aspect of these credits to weaken, meaning that buyers who formerly considered purchasing REDD+ credits are now tackling more cost-advantage credits, such as renewable credit projects.

In an attempt to improve credit criteria, the Integrity Council for the Voluntary Carbon Market (ICVCM) released the 

Core Carbon Principles for the Voluntary Carbon Market initiative

askforce on Scaling Voluntary Carbon Markets

, which sets new threshold standards for high-quality carbon credits. Additionally, Validation and Verification Bodies (VVBs), who play an important role in the Measurement, Reporting and Verification (MRV) process, conducting third-party assessments to provide independent confirmation, have become more rigorous in verification processes.

Rating agencies have also promoted credibility among stakeholders, by assigning "investment grades" based on principles such as calculation of emissions reductions, additionality, permanence, and co-benefits.

It is clear that the drop in confidence reflects consumer preference and the price of credits.

VCM: OTC Prices NBS

VCM: NGO

The prices of OTC transactions followed economic movements, having a sharp fall after the 2008 crisis, followed by a substantial increase in the value of transactions for a later stabilization and slow recovery of prices.

Prices for CBL NGO products (Dec-22) also saw wide swings, falling by a massive 72.2% from USD 14.8/t (Jan 3) to USD 4.12/t (Dec 30). The total volume of contracts also fell over the course of the year. This movement was also observed in the other CBL contracts, CGO and GEO.

However, even with potential backlash, some companies still prefer "low quality" credits, focusing on low costs rather than effectiveness or credibility. According to news published by 

, many big multinational companies have made climate promises backed up by cheap renewable-energy credits that do little to mitigate global warming.

It is possible that a crisis in confidence could shift companies away from these low-quality offsets. In the face of skepticism raised by experts and pressure from consumers and stakeholders, companies have become more committed to their credit choices.

An important initiative in this regard is 

the VCS Jurisdictional and Nested REDD+ (JNR) Framework

, which enables organizations engaged in emission reduction actions connected to forests to better align their initiatives with national climate goals.

Forest Trends’ Ecosystem Marketplace. 2022. The Art of Integrity: State of Voluntary Carbon Markets, Q3 Insights Briefing. Washington DC: Forest Trends Association.

News

Week 12: Pennsylvania governor forms working group to analyze the benefits of maintaining its RGGI membership

GO Week 12 Overview - 2022 GOs reach 7 EUR before 31 March deadline

Week 12: Benchmark contract follows macroeconomic behavior 

Week 12: CME’s CBL voluntary carbon offset futures continue slipping due to the negative press

Week 12: Recovery cut short by banking crisis, part two 

Week 12: KAU22 continues to fluctuate due to policy uncertainty

The EU gas market reform: The updated timeline on the Gas Package

A new beginning for financial players in China's carbon markets?  

ETS expansion to maritime will aggravate EUA scarcity

Commission proposal to extend gas reduction measures

Union database – March update to timelines

March 2023 HUPX Pan-European auction 

EAC Market Report - In The Midst Of A Bullish Wave

A platform with real-time GO data and insights, reporting prices and market fundamentals for Wind, Hydro, Solar, Biomass, Biomethane and RGGOs. 

Our community offers access to webinars, discussions and updates from industry leading experts and analysts. 

Forestry and Land Use credit projects are the most issued and retired type of carbon credits across trading platforms, but they have shown a decrease, in the last year, in both retirement volumes and prices (over-the-counter and spot). The reason for this drop is the lack of credibility in some projects, which caused demand to turn again to lower quality (but also lower prices) credits, such as renewable energy projects.

Our Platform gives you unfettered access to price benchmarking, analytics, new and insights covering the green certificates markets. 

Register for a trial now and someone from our team will be in touch with you to learn more about your involvement in the markets and to answer any questions you may have.