CNC, Nature-based Avoidance carbon price spread stays wide after record high in March

The price spread between Platts CNC and Nature-based Avoidance carbon assessments continued to be wide in early April after touching a record high in March as exchange-traded prices, reflective of CNC prices, fell following Russia's invasion of Ukraine.

The Platts CNC price assessment from S&P Global Commodity Insights is more reflective of exchange prices than the Nature-based Avoidance price because of the minimum volume requirements as per Platts' methodology.

The Platts CNC represents a minimum of five lots of 1,000 mtCO2e units each, while the Platts Nature-Based Avoidance represents a minimum of 20 lots of 1,000 mtCO2e units each.

As individual exchange volumes are usually lower than 20,000mt/CO2e on a day to day basis, the Platts CNC includes exchange pricing, while the Platts Nature-based Avoidance price is more reflective of the over the counter market.

The spread was at its widest ever at $3/mtCO2e on March 9 and 10. From March 31 to April 5, the spread was consistent at $2.35/mtCO2e. In comparison, from Aug. 13, 2021, to Feb. 28, the spread was consistently under $1/mtCO2e.

A major reason for the recent wider spread is that post the Ukraine invasion, exchange prices plunged much more drastically than those on the OTC. The OTC space withstood the fall better because of sellers refusing to drop their offers to exchange levels.

"OTC prices are comparatively higher. But offer prices tends to be higher than actual trade prices," said Abhishek Das, analyst at ClearBlue Markets, a carbon advisory firm. "On the OTC, buyers are very clear about what they want so prices are at premium. Demand is specific. Buyers ask for specific vintages and projects."

A source who trades both OTC and on the exchanges told Platts that sellers holding physical credits still seemed to be offering OTC credits above where the exchanges are currently trading. "Shows a reluctance for sellers to aggressively sell these types of credits. This is because they feel the market will come back to earlier prices," said the source.

A second trader told Platts that despite the high offers, there was consistent pressure from buyers in the OTC space. "Some REDD+ sellers are not going below exchange prices, so offers are high. Others are trading small volumes at prices similar to exchange levels," said the source.

Both exchange and OTC prices have been slowly moving upwards with the market gaining stability post the Ukraine invasion. "As demand increases, overall prices in the exchanges might increase as confidence builds. The spread between exchanges prices and OTC prices may decrease when exchange prices rise, which should happen soon," Das said.