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S&P Global — 14 Apr, 2023 — Global

Daily Update: April 14, 2023

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By S&P Global

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Soil Carbon Credits Gain Ground in Climate Fight

Faced with growing pressure from various stakeholders to decarbonize, companies are increasingly turning to the voluntary carbon market to help achieve their net-zero emissions targets. 

In the voluntary carbon market (VCM), companies can buy carbon credits to offset their unavoidable greenhouse gas emissions. Carbon credits are rewarded to projects that remove or reduce emissions from the atmosphere, including nature-based initiatives. One such initiative that is garnering increased interest in the VCM is the soil carbon credit.

Soil carbon credits are designed to reduce the environmental impact of agriculture, which accounts for about 11% of global greenhouse gas emissions. The credits are meant to spur farmers to shift to sustainable land management practices that increase the amount of carbon stored or sequestered underground. Some of these practices include reducing or eliminating tillage, maintaining ground cover through cover cropping, preventing overgrazing and limiting the use of fertilizers.

In addition to shaving agriculture’s environmental footprint, soil carbon sequestration projects can provide a further revenue stream to farmers as they are able to sell earned credits in the VCM. One soil carbon credit corresponds to 1 metric ton of CO2 or equivalent greenhouse gases reduced, avoided or removed from the atmosphere. Each credit can offset 1 metric ton of CO2 equivalent emitted by companies. With soil carbon and other credits gaining popularity, the VCM is projected to grow to as much as $50 billion in value by 2030, S&P Global Commodity Insights reported, citing estimates by the Taskforce on Scaling Voluntary Carbon Markets.

Buoyed by government policies on climate mitigation and emissions reduction, soil carbon credits are growing in prominence, mainly in the US and Australia. In the US, the Biden administration released a road map in November 2022 that allocated $25 billion to scale nature-based projects for carbon capture. The Growing Climate Solutions Act was also passed in December 2022 as part of a government funding bill to allow for easier participation of farmers in the VCM. The law set up a US Agriculture Department program that helps farmers connect with third-party verifiers and consultants to generate and sell carbon credits.

In Australia, farmers and other landowners who adopt soil carbon sequestration methods can earn Australian carbon credit units under the country's Emissions Reduction Fund scheme. The country had its landmark carbon trading deal in early 2021, when Australia-based Wilmot Cattle sold A$500,000 worth of soil carbon credits to Microsoft. Early adopters in the country said carbon trading now has a "gold rush feel to it."

Although support is growing for soil carbon credits, they are also met with skepticism. Concerns have been raised over the methods used to measure, report and verify changes in soil carbon stocks. These methods include soil sampling, calculations and modeling, which skeptics view as problematic. "There is no sufficient field data to rely on a model at this point. I expect it will take more than 10 years before we will have any confidence in models," Louise Edmonds, founder and CEO of Australian project developer Carbon Sync, wrote in an email to S&P Global Commodity Insights.

The lack of common standards for crediting soil carbon projects is another point of contention. The Integrity Council for the Voluntary Carbon Market is looking to change that with its Core Carbon Principles, released in late March. The principles lay out the fundamental characteristics of high-quality carbon credits, and crediting programs are expected to start using Core Carbon Principles’ labels later in 2023.

With the help of integrity initiatives, confidence in carbon markets is expected to grow. "The market as a whole is undergoing a transition, but I think when all is said and done, we will see a much more robust and strong carbon market because it will have clear guidelines on what kind of claims you can make and what kind of credits you can [use]," said David Antonioli, CEO of carbon credit certifier Verra.

"Building a widely shared understanding of what high integrity means for carbon crediting programs and categories of carbon credits is a precondition for the development and growth of a viable and vibrant VCM," Annette Nazareth, chair of the Integrity Council, said.

Today is Friday, April 14, 2023, and here is today’s essential intelligence.

Written by Pam Rosacia.


Monthly PMI Bulletin: April 2023

Global business activity growth accelerated at the end of the first quarter of 2023, allaying concerns of imminent recession in the global economy. A common thread running through the majority of the national PMI surveys was the extent to which growth was driven by the service sector. By contrast, manufacturing output barely rose for a second month running.

—Read the article from S&P Global Market Intelligence

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Capital Markets

Global Covered Bond Insights Q2 2023: The Implications Of Rising Interest Rates

Despite a very strong start to the year, S&P Global Ratings expects 2023 covered bond issuance to be slightly lower than the 2022 peak given reduced funding needs and weak loan growth. Available credit enhancement should be sufficient to cover for higher requirements due to rising interest rates and deteriorating asset performance. This report presents all the core characteristics and risk indicators that we assess regularly in our analysis of covered bonds.

—Read the report from S&P Global Ratings

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Global Trade

Atlantic Supramax Market Looks To Higher Rates In Q2

Participants in the Atlantic Supramax dry bulk freight market said they expect rate spikes on all routes going into the second qurter of the year, despite weak demand in the first three months of the year, amid trading volatility as supply-demand imbalances persist in the basin. The U.S. Gulf Coast region suffered substantial losses in both trans-Atlantic and fronthaul key routes at the beginning of the first quarter, as negative fundamentals blanketed the basin.

—Read the article from S&P Global Commodity Insights

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Sustainability Insights: Why Climate Risks Are Changing So Few Corporate Ratings

Since early 2022 S&P Global Ratings has taken very few rating actions on nonfinancial corporates stemming from climate-related risks. It believes this is primarily because of the growing gap between policy pledges and the tangible effects of regulations, as well as companies' so far limited spending on net zero investments. Climate transition and physical risks are nevertheless important considerations in our rating analysis for more than one-quarter of nonfinancial corporates.

—Read the report from S&P Global Ratings

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Energy & Commodities

Asian Refiners Back OPEC+ Cut But Fret Over Regional Oil Demand On Weak Macroeconomics

Refiners across East Asia have been supportive of the latest OPEC+ decision to cut production to some extent as the move aimed to inject some stability to the sharp downtrend in benchmark crude prices seen in March, but middle distillate marketers are concerned that a new price uptrend would be detrimental to regional oil demand amid Asia's fragile consumer confidence and high inflation.

—Read the article from S&P Global Commodity Insights

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Technology & Media

New York Auto Show 2023: In Case You Missed It

While the auto show business model remains in flux, the recent New York International Auto Show featured several all-new production and concept vehicle introductions. Though the overall number of intros was low compared to historical norms, it is reflective of the industry's effort to promote its transition to an EV-dominant market, while still selling millions of legacy internal-combustion vehicles.

—Read the article from S&P Global Mobility

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