InSights

More than two years after the latest large legislative change in the WCI, the introduction of Assembly Bill 398 segregating offset credits into DEBs and non-DEBs, the market slowly settles into a new stage of maturity. Yet, new developments within and without the market continue influencing expectations: as outlined in the AB32 Climate Change 2022 Scoping Plan, the California Air Resource Board appears set to introduce a more stringent emissions cap that aims to take emission levels 48% below 1990s levels by 2030, as opposed to the former 40%. On top of this, 2023 is going to be the first year in the history of the WCI where state-wide emissions surpass the emission cap. Increased demand in the voluntary carbon markets for high-quality offset credits is turning project developers formerly only selling on the compliance market towards voluntary purchasers. The recent launch of the Washington market is also bound to create increased demand for offset credits, even if the linkage of the two markets do not materialise by the end of the decade.

This flagship report examines past trends and possible futures for the demand and supply balance of the Voluntary Carbon Market (VCM). We outline scenarios based on different IC-VCM outcomes, Article 6 implementations, and corporate demand levels.

In the past year, several landmark judgements and legislations have been brought into action within the United States. These comprise laws that focus on greenhouse gases, emissions reduction, regulation of carbon markets, and more. Within this version of our Legislative Tracker, we have captured key bills that were introduced in the US Federal and State legislation, as well as in Canada during 2021-2022. Several key bills focusing on the broader environmental domain have an impact on different carbon-related markets: from Cap-and-Trade, Carbon-intensity based clean fuels, to Voluntary markets.

The Canadian Clean Fuel Standard (CFS) is a proposed set of regulations which aims to reduce the carbon intensity (CI) of liquid fuels that are imported, sold, and consumed within Canada. The CFS will come into force in 2023. It is modelled around the Californian and European fuel standards that are already in place. It is anticipated that the CFS will deliver a 30 megatonnes of annual reduction in greenhouse gas emissions by 2030, and lead to associated health and air quality benefits of Canada's citizens.The implementation of the CFS may incur an estimated societal cost per tonne between $111 and $ 186 and a $ 9.0 billion hit to the GDP in 2030 (0.3% of total). The implementation of the CFS may incur an additional cost of gasoline of between 6- 13 cents per liter in 2030.

This report returns with a 2030 and 2050 projection. The 2030 projection has been aligned with the Scoping Plan conversations underway. In addition, we have observed some fundamental shifts from our pre-covid expectations. The following are some of those changes in our scenarios: The year 2021 saw 250,000 + ZEVs sold in California taking the cumulative sale past the 1 million milestone. Our ZEV sales expectation has increased in our latest model run. The entry of investors has smoothened our price curve. Compared to the \\\'jagged\\\' price curve from 2021, we have incorporated investors into the 2022 model run. That has smoothened out our price forecasts. The ongoing scoping plan does not hint at any changes pre-2030. However, we have taken a cue from the plan to extend our projections to 2050. Also, we have taken scenarios that factor a tightening of the carbon budget post-2030. The Canada Clean Fuels Regulation (CFR) is expected to go live in 2023. We have factored its impact on Quebec transportation. In this year's forecast, we have assumed a slower build-out of renewables in the near term (2022-2024) on account of supply chain challenges being faced by several developers, the possibility of a slow-down in economic activity and higher cost of borrowings.

Aviation accounts for approximately 2.4% of global COâ‚‚ emissions. In view of the current state of the global climate crisis, it becomes imperative to curb emissions. SAF is a biofuel which is chemically similar to conventional jet fuels and is one of the prominent solutions to decarbonize the aviation sector. It can be produced from renewable sources such as waste oils, municipal waste and non-food crops. With a carbon footprint much lower than conventional fossil fuels, SAF can help reduce COâ‚‚ emissions by up to 80%. With environmental regulations growing increasingly stringent across the globe, the demand for SAF is expected to pick up in the coming years. There are different technology pathways available for producing SAF. Currently, the ASTM D7566 lists seven approved pathways for the production of drop-in SAF. In addition, the ASTM D1655 lists two pathways for co-processing biomass-based feedstocks along with fossil fuels.

In 2021, the Washington Legislature passed the Climate Commitment Act (or CCA) which establishes a comprehensive program to reduce carbon pollution and achieve the greenhouse gas limits set in state law. The program will start Jan. 1, 2023. The Climate Commitment Act (CCA) caps and reduces greenhouse gas emissions from the state's largest emitting sources and industries, allowing businesses to find the most efficient path to lower carbon emissions. This puts Washington on a path to meet the greenhouse gas emission limits set in state law.

This introductory market primer covers the Korean Emission Trading System (K-KETS) which was launched in 2015 and has entered the third phase starting 2021. This report describes the key features of this leading East-Asian carbon market, and compares it in size and development to other programs around the world.

The RGGI (Regional Greenhouse Gas Initiative) program currently covers 11 states and each state's policy and resources influence the market. Since 2008 (when the RGGI program had its first auction), RGGI states have reduced emissions by more than 50% twice as fast as the entire nation, and raised over $4 billion for the states to invest in local communities

Canada's carbon market mosaic primarily covers the federal output based pricing system (OBPS) and the Federal Clean Fuels Standard. Canada has also allowed provinces to develop sub national programs that are in-line with Canada's emission targets. As a result, a diverse set of programs exist across the landscape. This report is an introduction to navigating these carbon pricing mechanisms.

The Voluntary Carbon Market (VCM) is often described as a highly opaque market, in which the same offset can generate vastly different prices between different retailers. When price quotes are wildly variable for similar projects, buyers are more likely to view the market as immature and question its place as a steppingstone in the global environmental transition, thus potentially stunting market growth. If the VCM is to take a more central role in climate mitigation strategy, trust needs to be built in the market.

CaliforniaCarbon.info's updated 2021 WCI Offsets Outlook: Outlook for DEBs & Non-DEBs provides both detailed insights into current offset market dynamics, and a 2030 forecast for net supply-demand and prices as the markets splits into DEBs and Non-DEBs after the controversial AB398 ruling.