Carbon market indicators

Voluntary carbon demand bounced back late in 2023, while supply trended lower throughout the year

Voluntary carbon markets credit supply (issuances) and demand (retirements) (million carbon credits)

• A total of 248 million credits were issued in 2023, 10% lower than 2022 (277 million credits). Twenty million credits were issued on average per month, three million less per month than the previous year. Issuance trends reflect continued inefficiencies in project registry and verification amid heightened VCM uncertainty during a transitional year for credit quality guidance and standards. Project owners may have decided to postpone project verification until greater clarity is available for quality standards and implementation.
• A total of 164 million credits were retired in 2023, 15% higher than 2022 (154 million credits). Fourteen million credits were retired on average per month, 820,000 fewer per month than the previous year. While retirement volatility was observed throughout 2023, December provided a strong close to the year with an historic monthly high of 37 million credits retired. The next highest retirement volume in the past two years was 25 million credits in December 2022. December is typically the month when companies perform end-of-year credit purchases to finish their yearly emission reports. 

Nature-based solutions’ share of total credit demand increased while their share of total credit supply decreased in 2023 relative to 2022

Voluntary carbon market credits monthly issuances and retirements by project type (million carbon credits)

Sources: American Carbon Registry, Climate Action Reserve Registry, Verra Registry, and Gold Standard Registry, as of January 9, 2024. 

• Compared with 2022, renewable energy credit issuances gained greater market share while nature-based solutions (NBS) issuance share decreased. Of the 248 million credits issued in 2023, 59% were energy credits, 28% were NBS credits, and 6% were other credit types (such as destruction of methane and industrial gases).  
• NBS credit retirements gained share in 2023 compared with the share of energy credits demanded. Of the 164 million credits retired in 2023, 47% were energy credits, 38% were NBS credits, and 13% were other credit types (destruction of methane and industrial gases).
• In 2023, new NBS issuances averaged just under 6 million credits per month, 23% lower than 2022, which may reflect continued inefficiencies in registry and verification and intentional project owner issuance delays due to market uncertainty.
• NBS retirements averaged over 5 million credits per month, 35% higher than 2022. This increase may reflect the growing corporate buyer preference for NBS credits as part of their commitment to climate action. 

Voluntary carbon market prices trended lower during 2023

Source: Allied Offsets Price Indexes, as of January 1, 2024. https://alliedoffsets.com/prices-2/Allied Offsets develops weekly VCM price indexes based on asking prices reported by over 20 brokers and researchers. The Allied Offsets 500 Index represents reported prices for the 500 largest retired projects in the VCM. Nature-based solutions represent the most retired forest and agriculture-based projects in the VCM (quantity of projects undisclosed). The Climate Action Reserve (CAR) and the American Carbon Registry (ACR), North America, and VCS and Gold Standard each represent the reported price for the most retired projects corresponding to that category (quantity of projects undisclosed).

• VCM indexes continued to trend lower during 2023, reflecting buyer caution and uncertainty, and plentiful supply of older vintage credits. A preference for higher-quality credits is emerging as a major demand and price driver.
• Gold Standard and Verra’s price index fell 58% through 2023, while nature-based and forestry credits fell 49%, the Allied Offsets 500 Index fell 35%, North American projects declined 36%, and CAR and ACR project offsets slipped 35% lower.
• The North American price index, primarily reflecting projects registered with the CAR and the ACR, maintained an average monthly price premium of $4.60 over the Gold Standard and Verra price index throughout 2023.

Compliance market prices increased in Western U.S. but trended lower in Australia and New Zealand

Compliance carbon prices, January 2023 to December 2023 ($/tonne)

• California Air Resources Board (CARB): California Carbon Allowance (CA Allowances) prices trended higher throughout 2023, starting at $30.33/tonne in February and ending at $38.73 in November, a 22% increase. 2023 saw the first trade of direct environmental benefits (DEBs) carbon offsets (CA CC08 DEBs)—that deliver DEBs to the state of California—with prices up to twice those of non-DEB offsets (CA CC08 Non-DEBs) throughout the year. Allowance price increases in the second half of 2023 were influenced by informal rulemaking workshops held by the CARB that indicated future reductions in cap-and-trade budgets and steep allowance price increases by 2040.
• Washington cap-and-invest program (Washington): The first Washington Carbon Allowance auction settled at $48.50 in February 2023, following a period of price discovery after the launch of the program. Spot transactions in the secondary market traded well above the first and second price containment reserve prices of $51.90 and $66.68, respectively, throughout most of the first half of the year. Washington's Department of Ecology proposed changes to the regulation and held two emergency auctions to control prices, prepare for potential linkage with California's Cap-and-Trade Program and increase allowance supply. These changes led to a cooldown of the market and may have dissuaded speculators from participating.
• AU Emissions Trading Fund (AU ERF): The first half of 2023 saw Australian allowance prices increase to a range of $24 to $25 after the approval of the Safeguard mechanism, Australia’s approach to emission reduction targets and allocations, and after the adoption of recommendations from the independent Chubb review. Beginning in July, prices began trending lower between $19.50 and $21, seeing the entry of large volumes of credits into the market and softer demand.
• NZ Emissions Trading Scheme (NZ ETS): In early 2023, New Zealand emission unit (NZU) prices began trending downward as the government decided not to increase the price of the cost containment reserve (a set volume of NZUs that became available once a trigger price is reached) as advised by the climate change comission, with NZU prices reaching $28.86 in July. Throughout the year, all quarterly government auctions of NZUs failed to reach the confidential reserve price, leaving close to 15 million NZUs untraded and subsequently cancelled. Prices began to increase in August, but the market remained cautious due to uncertainty arising from the October election when the opposition National Party won the majority of seats. Little change to ETS legislation is expected in the short term.