Ecosystem Marketplace (EM) has recently unveiled the 2023 State of the Voluntary Carbon Market (SOVCM) report, offering a comprehensive analysis of the global voluntary carbon credit supply and demand landscape. The report is a culmination of interviews, disclosures from key market players, and registry data from major carbon credit standards. While primarily retrospective, the report also sheds light on potential future market trends.
In 2023, the voluntary carbon market witnessed a significant year marked by increased scrutiny following media coverage of unethical carbon projects. Despite these challenges, the market’s value surged for the fourth consecutive year since 2020, reaching an impressive $723 million in 2023. This upward trend, which began in 2020 and peaked in 2021 with over $2 billion in carbon credits traded, has somewhat offset declining transaction volumes.
Overall, the period between 2020 and 2023 accounted for 49% of the total VCM value reported to EM since 2005, indicating substantial market growth and resilience. The insights from the EM report paint a detailed picture of the market landscape, highlighting key trends and developments.
The Big Picture: Volume, Value, and Price Dynamics
In 2023, the voluntary carbon market experienced a notable downturn, with total transactions plummeting by 56% to 111 million tons CO2e compared to the previous year. Despite this sharp decline in volume, the average price per ton of CO2e only saw a moderate decrease of 11%, settling at $6.53.
Consequently, the total market value also took a hit, dropping by 61% year-over-year to $723 million. This decline in market activity was attributed to both a reduction in volume and a retreat from the peak carbon prices observed in 2022. The decrease in the number of market respondents further contributed to the downturn, with some entities merging and others pausing credit sales as they awaited the establishment of stronger integrity and quality norms within the VCM.
Buyer Behavior: Premiums and Preferences
The EM report highlighted notable variations in credit prices depending on the type of buyer. End users, who directly utilize carbon credits for emission reduction purposes, paid a premium of 33% over intermediaries, consistent with the previous year. This premium reflects the value end users place on credits for achieving their sustainability objectives.
Transactions involving Energy Efficiency/Fuel Switching and Renewable Energy credits saw the largest premium for end users, indicating a reliance on intermediaries for project quality assessment. Among different credit standards, Gold Standard credits commanded the highest premium for end-user sales, suggesting a growing preference for trusted intermediaries to vet project quality.
Registry Round-Up: Project Registrations and Trends
Analysis of registry data from credit standard registries offers insights into project registrations, issuances, and retirements in the VCM. In 2023, the total number of newly registered projects increased to 694, with Household/Community Devices projects leading the growth. Registrations in Forestry and Land Use, Renewable Energy, Agriculture, and Waste Disposal categories also saw year-on-year increases.
Credit issuances decreased by 93 MtCO2e in 2023 compared to 2022, while retirements increased by 2.6 MtCO2e, indicating a tightening surplus supply of carbon credits. Declines in issuances were observed in Chemical Processes/Industrial Manufacturing and Energy Efficiency/Fuel Switching categories, while Household/Community Devices and Transportation projects experienced increases.
Evolving Project Preferences
The decline in total market value for all categories of VCM credits in 2023 was accompanied by various factors affecting each category. While some categories experienced increases in volume and/or average transaction price, others faced declines. Energy Efficiency/Fuel Switching, Agriculture, and Household/Community Devices categories saw volume growth, indicating increased activity.
Conversely, Forestry and Land Use and Renewable Energy credits witnessed the largest declines in volume, despite being popular project types. Notably, North American industrial process efficiency credits were transacted at lower prices, contributing to the price decline in the Chemical Processes/Industrial Manufacturing category. These trends reflect the evolving market preferences and supply factors within the VCM landscape.
The release of the 2023 State of the Voluntary Carbon Market report by Ecosystem Marketplace provides valuable insights into the current state of the global voluntary carbon credit market. The analysis of market trends, buyer behavior, and project preferences offers a comprehensive overview of the challenges and opportunities within the VCM. As the market continues to evolve, stakeholders must adapt to changing dynamics to drive sustainable growth and impact within the voluntary carbon market.
