Offer price of 2013+ CDM certified renewable credits above $4.00/mtCO2e

The offer price of carbon credits issued by renewable energy projects certified under the second period of the Clean Development Mechanism have risen above $4.00/mtCO2e, a sixfold increase since May 2021 when the price was in a 30-60 cents/mtCO2e range.

Credits belonging to the second period of the CDM mechanism are those issued after 2013.

On Feb 2, S&P Global Platts reported a series of CDM credits with vintages ranging in the 2013-2020 period and no CORSIA eligibility with offer prices in the $4.20-$4.60/mtO2e range.

On Feb 3, sources said 30,000 mt of renewable energy carbon credits non CORSIA eligible from Guatemala and with a 2020 vintage were trading at $4.00/mtCO2e.

In April 2021, market sources said CER (Certified Emission Reduction) credits were around 30-60 cent/mtCO2e and expected to fall after April 30, which was the last day for trading of CER credits in the European ETS compliance market.

But despite bearish expectations due to concerns about their quality, CDM credits have risen in price as they became on the of the most competitive offsetting tools available in the voluntary carbon market.

"We have seen a lot of demand for these types of crediting period 2 credits," a Europe-based carbon trader said Feb. 2. "Their [trading] prices now range between $3.00 and $4.00/mtCO2e, and it was between $2.00 and $3.00/mtCO2e about a month ago. Demand has been steadily building for much of this year," the trader said.

A US-based carbon trader said late Feb 2: "The pricing [of CDM credits] is higher. The only thing I could really point to is that it is one of the lowest priced options still available in the market."

According to a third trader, who also acts as a developer of carbon projects, most end-buyers of voluntary carbon credits prefer higher quality and newer vintages carbon credits to offset their emissions but there was still a minority looking to secure the most competitive credits available in the market.

When those buyers decide to buy CDM credits as their competitive supply, they only chose 2013+ vintages, the source said.

That preference for 2013+ credits is now translating in a premium for 2013+ vintages towards older vintages.

On Feb. 3, Platts reported a trade for 100,000 mt of renewable energy CDM certified credits from China with a non better specified "before 2015" vintage. The trading price was heard at $2.25/mtCO2e.

COP26 impact

Another big push in the price of these credits came last November when the parties to the Paris Agreement attending the UN Climate Conference in Glasgow (COP26) decided to authorize the transfer of 2013+ CDM certified credits under the yet to be implemented 6.4 crediting mechanism.

In the two weeks preceding the conference, market sources started to talk about increased demand and higher prices for CDM certified credits by players betting on an extension of their existence under the 6.4 mechanism.

The 6.4 crediting mechanism is the mechanism to be implemented by the UN under the framework established by Article 6 of the Paris Agreement. It is set to gradually substitute the CDM, which was developed under the Kyoto Protocol.

Offer prices for CDM certified renewable energy credits with a 2013+ vintage reported by Platts started to rise above the $2.00/mtCO2e mark around Oct. 20.

Just before COP26, at the very end of October, renewable energy CDM credits without CORSIA eligibility and with a 2013+ vintage were being offered in a $1.95-$2.30/mtCO2e range.

Supply squeeze?

For a type of carbon credit that most in the market believed destined to disappear, the CDM market is seeing a supply squeeze, according to the first trader. "There is a slight squeeze on spot volume with many projects issuing credits from April onwards," he said.

According to the source, some CDM certified carbon projects have stopped issuing credits in April last year, when these credits were excluded from the EU's ETS system.

"Some credits were warehoused and are now getting looked at again due to increasing pricing and demand," the trader said, adding developers stopped issuance once their market price dropped consistently.

"Now that they are being used in the voluntary market. the demand and pricing have increased. So, project owners are looking at reissuing credits," he said.