August VCM retirements up 2.6% on year as high energy prices hit sentiment

Voluntary carbon credit retirements in August were up 2.6% year on year to 11.97 million, data collected by the Global Carbon Analytics team at S&P Global Commodity Insights from Climate Action Reserve, American Carbon Registry, Gold Standard and VERRA showed.

There were 12.10 million retirements of credits in July, up 28% year on year.

The fall in retirements came amid increasing fears of a looming recession and the impact it may have on environment markets.

Rising energy prices

Market players raised concerns over the past weeks about rising energy prices and the pressure they may put on corporates when managing their input costs, suggesting corporates could delay buying environmental commodities.

"I think this will be a real concern, especially considering that the major eurozone economy [Germany] will struggle the most with the need to ration Russian consumption," a trader said. "These concerns have been weighing on the market for some time."

"We need to wait for economist to say their point but inflation is crazy high, gas/hydro is scarce, electricity prices are going up and not stopping, governments are showing money for free to support but central banks cannot issue more cash," another trader said, adding that recession has already hit some parts of Europe.

A third trader had said a recession in Europe would be particularly bad for the voluntary carbon markets, suggesting the focus on sustainability could lift when economic survival becomes difficult.

Mitigating climate change in focus

However, a fourth trader said that while macroeconomic concerns existed and the prices of power and gas were increasing in the European countries, which was adding to their input costs, corporates are increasingly understanding that it cannot be that they can choose one over another.

The increased focus on mitigating the climate change impact is another reason why demand for carbon credits will increase more, the trader said. The impact of climate change is more pronounced than ever, and corporates are becoming aware that they will have to manage their emissions as well as their survival, the trader said.

Retirements in 2022

Retirements in 2022 to August were up 6.2% to 96.85 million, largely due to big numbers in the first quarter. In January, retirements soared 47% to 14.8 million while in February they rose 18% to 13.6 million.

Retirements in March fell11% to 14.86 million, down 10.9% on year, data from S&P Global Commodities Insights showed.