Lack of consensus on premium of popular REDD+ carbon projects grow

A lack of consensus appeared in the voluntary carbon market over the week of May 4-11 on the premium of popular Reduction of emissions from deforestation and forest degradation projects, or REDD+ with high Sustainable Development Goals like Rimba Raya, Southern Cardamom, Kariba and Envira, which has so far seen significant premium to other REDD+ projects.

REDD+ offsetting projects guide activities in the forest sector that reduce emissions through social, climate and biodiversity activities.

A trader told S&P Global Commodity Insights he did not see a premium, as the projects had become quite "standard" because of the volume of credits from these projects available in the market.

All over-the counter VCS/CCB (Climate Community and Biodiversity Standards) REDD+ are priced according to the N-GEO contract these days, said the trader. The trader added that sellers did try to push the premium for Rimba Raya-like projects in their offers. "But I don't see the spread trading," the trader said.

However, on the premium, a second trader said: "I see it. On Rimba Raya and Kariba projects for sure." He added that he didn't spot a premium for Southern Cardamom credits. While not sure about where to place this premium, the broker noted: "I have clients preferring Rimba Raya."

A third source, a broker said the popular REDD+ projects such as Rimba Raya, Envira and Kariba are currently valued at a 40-45 cents/mtCO2e premium towards the CME's N-GEO December futures contracts, with the CME's December 2022 used as a reference for 2017 vintage year and the CME's December 2023 used as a reference for 2018 vintage year.

Asked whether it was the CCB Gold certification that gave these projects a premium price and not just their popularity, the trader said: "I think the Gold [certification] helps. It works better for people to market out as corporates." The source added that VCS/CCB Gold projects would have a 40-45 cents/mtCO2e premium towards regular VCS/CCB projects.

The VCS/CCB Gold certification is given to projects that are able to satisfy all the CCB criteria, plus one of the optional Gold level criteria set by Verra.

A fourth broker said he saw a premium of 20-50 cents/ mtCO2e for Rimba Raya-like projects of 2018+ vintage over regular VCS/CCB projects of similar vintage, while a fifth source placed the premium at $1/mtCO2e.

Indonesia regulations impact

A sixth source said, "Projects like Rimba Raya are popular and players feel comfortable with them. Buyers want projects they are comfortable with and would pay a premium for something they have bought before."

However, the source added that it was unclear whether the recent Indonesian government restrictions on credits would have an impact on future prices.

Recently, the Indonesian government had restricted credit issuances from certain regions within the country to meet their domestic nationally determined contributions (NDC) requirements. Credit issuances so far have been restricted for newer vintages post 2021. The source said that the future of Rimba Raya's vintage 2021+ credit issuances and pricing were unclear in the current scenario.

"If it is confirmed that the Indonesian government would demand that 30% of the credits traded be done locally, you could expect lower price levels in the domestic market, which would require the price for the other 70% to be traded internationally be adjusted as well," said the source.