The Voluntary Carbon Market Landscape in the US

VAI x Mobius

The predominant focus in the United States revolves around energy transition and energy efficiency rather than the specific objective of achieving a 1.5-degree Celsius target.

 

Instead of a nationwide Emission Trading (ETS) program, the U.S. features several regional initiatives such as low carbon fuel, low carbon power generation, and cap-and-trade programs.

 

The California cap-and-trade compliance market is well-structured, closely resembling the design of the EU ETS. This program accepts voluntary carbon credits (ARB), allowing for a 5% inclusion. However, a notable challenge is the potential for industries to relocate to neighboring states like Arizona and Texas to avoid participation in the program, particularly in the absence of a carbon border adjustment mechanism.

 

Renewable Energy Certificates (RECs) enjoy popularity in the U.S., with the option for voluntary trading or compliance purposes. Traditionally, major carbon credit buyers were found in the big tech and transportation sectors, such as airlines. Nevertheless, airlines are now shifting away from carbon credits, displaying a growing interest in sustainable aviation fuel (SAF).

 

In the U.S., industries, predominantly managed by engineers rather than financiers, exhibit a preference for solutions they comprehend well. Consequently, there is a heightened focus on engineered carbon solutions, including carbon capture, utilization, and storage (CCUS), co-generation, energy efficiency, hydrogen, and direct air capture (DAC).

 

The introduction of the Investment Tax Credit for Carbon Capture (45Q) significantly enhances its value, with captured carbon now valued at 85 USD per tonne of CO2.

 

It creates opportunities for new types of production, such as steel and aluminium manufacturing, which were previously economically unviable with credits at 45 USD.

 

The European Union’s Carbon Border Adjustment Mechanism (CBAM) represents a substantial opportunity for the U.S. due to its greener electric grid and cleaner industrial processes, relying on pellets, natural gas, and other cleaner methods.

 

This is in contrast to many competitors that rely on coal and more traditional, carbon-intensive engineering approaches.

 

Comparison of Retirements by Registry

comparison of jan to oct retirements
  • ACR retirements have increased by 15% (6.156M vs. 5.341M)
  • CAR retirements have surged by 72% (3.761M vs. 6.504M)

Retirements For Projects Located in US/CA/MX

retirements for projects located in us-ca-mx
  • Retirements for projects in these 3 countries are higher by 34% in 2023 than in 2022 (13,087,113 tCO2 vs 9,714,461 tCO2)
  • Retirements for Nature-based projects (IFM and ARR) are dropped slightly by 6% (2,898,022 tCO2 vs 3,110,327 tCO2)
  • Retirements for Industrial Gases projects (Gases Abatement) have increase by 140% between 2023 and 2022 (6,940,448 tCO2 vs 2,890,910 tCO2)

Retirements for CAR and ACR Projects

retirements for CAR and ACR projects The Voluntary Carbon Market Landscape in the US
  • There was a 350% increase in retirements for CAR in Q1 2023, totaling 4,547,033 tCO2 compared to 1,010,089 tCO2 (for Q1 2022)
  • A total of almost 3 millions tCO2 afolu credits (Improved Forest Management) have been retired in 2023
  • Gases abatement credits retired in 2023 outnumbered afolu credits by almost fourfold (11,172,417 tCO2 vs. 2,957,334 tCO2)

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About the author:

Bertrand Le Nézet is co-founder and Chief Market Intelligence Officer at Viridios AI.  Bertrand has 15 years experience in financial markets, within major financial institutions in Europe and Asia, and as an independent portfolio manager. His expertise is anchored in a unique cross-section of quantitative finance and technology, for the fixed income, commodities, equities, and natural capital asset classes. He has a masters degree in Computer Science and a Certificate of Quantitative Finance (CQF).