For the January through April timeframe from 2021 as compared to 2022, there have been some interesting disparities in the voluntary carbon credit market's issuances and retirements.
The voluntary carbon market continues to issue more credits in 2022 than retirements, but the gap narrowed compared to 2021. Carbon offsets do not expire; therefore, the "bank" of available offsets is increasing. That is, the cumulative number of unretired carbon offsets is increasing. In our view, this will not last. When the annual retirements start to exceed the annual issuances -- perhaps later this decade -- these carbon-credit prices should see a significant increase.
The four major carbon credit registries discussed here are:
Across these four registries, issuance of new carbon offset credits over the first four months of 2022 versus that in 2021 have declined while the retirements of carbon credit offsets have increased. The total number of issuances for this four-month period in 2022 fell 17.2% from 115.5 million credits to 95.6 million. Retirements, on the other hand, rose 17.4% from 46.4 million credits to 54.5 million over this same four-month comparative period.
The dynamics of these issuance and retirement statistics reflects the growing demand for voluntary carbon offsets in the current market along with the slowing down of the supply of voluntary carbon credits.
Much of what drives the over totals across these four registries is due to what occurs in the Verra registry, as this registry over the past few years has represented the lion’s share of carbon credit issuances and retirements. And like seen in the grand total, Verra’s VCS registry showed a 22.5% decline in issued credits for the first four months of 2022 versus that in 2021, while displaying a 13.6% increase in retirements over these same two comparative periods.
Interestingly, the 13.6% increase in Verra retirements over these periods represents a net amount of 5.4 million offsets. Almost all of this increase, nearly 5 million credits, can be accounted for by the offsets tied to the cryptocurrency scheme of Toucan’s BCT which required the retirement of a Verra VCS credit in order to be tokenized (find more AEGIS research on this subject here).
The only registry that saw gains in both issuances and offsets over these periods was ACR. While among the two smallest of the four major exchanges, ACR saw a 170.2% gain in issuances and a 206.6% gain in retirements when these first four months of 2021 versus 2022 are compared.
Questions? Contact our team for more information: environmental@aegis-hedging.com
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