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Hype around nature-based credits crowding out other quality credits: sources


Trend may cause inverse CNC, Household Devices price relationship

  • Author
  • Silvia Favasuli    Paula VanLaningham
  • Editor
  • Jonathan Fox
  • Commodity
  • Electric Power

The current hype around nature-based credits within voluntary carbon markets is resulting in lower demand for other quality carbon credits such as household devices, industry sources have said.

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The trend may result in an inverse relationship between the price of nature-based credits and the price of other quality credits, they said.

According to a project developer of cookstoves projects, credits within the same higher-quality group inevitably tend to compete against each other.

"Compared with large-scale industrial projects, nature-based projects and household device projects are considered better projects because they have extra social and environmental benefits that those industrial projects don't have," he said. "This makes CNC and HD competitors. The increase in demand for one can cause the decrease of demand in the other."

A carbon credits portfolio-developer said: "There is much hype around nature-based solutions at the moment at the expense of households devices."

To determine which credits comes out as the winner are the costs and processes involved in their development, the first source said.

"The reason why CNC became popular is that it is relatively easy to claim a large volume of credits and in many cases with little or even no work. For example, a project that avoided deforestation could simply be stopping the commercial harvesting."

He added: "One the other hand, Household projects involve dealing with tens of thousands of low-income people in remote areas. It is very challenging to operate and manage such projects. And the carbon credits created by such projects are much smaller compared with forestry projects. This is why most of the capital has been drawn to nature-based projects, hurting the funding of household devices projects," he added.

Divergent prices

This demand trend may translate in an inverse price relationship between nature-based credits and household devices credits or other high-quality credits, sources noted, with the price of one basket increasing when the price of the other basket decreases.

However, the presence of different price dynamics within the Household Devices space may make this trend difficult to be spotted, a trader said.

"I'm not sure if that price relation is directly visible. I think projects in household devices are separately priced, even more than in nature-based solutions," he said.

Platts CNC price – which reflect nature-based credits - and Household Devices prices showed a divergent move over the past few days. On July 9 the Platts CNC price shed 3 cent/mtCo2e from the previous day to $4.70/mtCO2e, and Platts Household Devices price remained stable on the day at $6.06/mtCO2e. On July 12, Platts CNC was assessed stable on the day at $4.70/mtCo2e, while Platts Household Devices price gained 5 cent/mtCO2e to $6.10/mtCO2e.