28 Jan 2022, By Adrian Enright, Chief Customer Officer

Carbon market wrap 2021

The carbon market rocketed to new heights in 2021. From record prices, to the emergence of crypto carbon tokens and calls to end the market all together. The market for carbon had it all in 2021. Here are a few key take ways of the year that was 2021, and look towards 2022.

The good

It’s fair to say that 2021 was the year that carbon markets really started to grab the attention of those outside the market bubble.

In the first eight months of 2021, 240 million tonnes were traded, up 26% on the total volume traded in 2020. This has to be seen as a good thing. It follows increased ambition driven by corporate organisations who have seen the penny drop in 2021 that carbon offsetting will play a fundamental role in addressing emissions today, pricing in carbon for tomorrow and complementing their efforts across renewable, tech change and so on.

Supporting this was the development of much needed rules around the market through COP 26 which has provided clarity on key areas of the market like double-counting, corresponding adjustments and a new face for the Clean Development Mechanism.

For project developers and market economists, the record high prices for offsets has also been a good signal of the value the world is placing on emissions avoidance and sequestration.

Australian spot prices have soared above 130% in 12 months, going beyond the ‘economy wrecking’ benchmark of $23 / tonne early in the year and settling above $40 per tonne at its conclusion.

International markets have also trended up in the realm of 300%, and many of the compliance markets climbing up as tighter 2030 targets start to bite.

The market has also seen some really interesting developments in areas like crypto currency and new funds. While funds like AirCarbon Exchange, Blockchain for Climate Foundation and TraceX have been around for some time, it was Klima DAO that dominated the headlines with its bullish purchase of over 12 million tonnes within a month. It remains to be seen whether their strategy to hoover up old and cheap offsets as a fundamental foundation for the product will stand the test of time under new market rules. But nonetheless, the signal was clear that blockchain and crypto is well and truly being woven into the fabric of the future carbon market.

The emergence of forward markets, natural capital funds and mainstreaming carbon neutral offerings in the markets from brands like Qantas, Singapore Airlines and travel tech giant, Serko have also pointed towards a market maturity which will only continue to grow, diversify and become even more interesting in the new year.

The challenges

I don’t think anyone in the market would argue against the need for continued scrutiny and increased rigour in the way offsets are generated. However, in a year where we have seen logging re-opened in the world’s second largest rainforest, the role the market is playing in channelling billions of dollars into conservation finance has never been so important.

While the majority would agree that the speed of the global decarbonisation effort needs massive acceleration and fundamental system shifts, it’s unfair on those directly and indirectly involved in processes like COP26 to relegate it to a greenwashing talk-fest.

COP26 has broadcast the clearest market signal in the history of the carbon market and moved the dial in the right direction. One key message is that, participating in carbon markets will not be optional, and corporates will find themselves covered by either a domestic or international carbon compliance market or be motivated / coerced into the voluntary carbon market.

Really important rules were also established at the COP and it provided organisations a platform to raise ambition and apply pressure on their industry peers. These negotiations continue to be important milestones in the year to do a pulse check of the globe’s climate ambition and a platform to continue to fight for what we all know is the right thing to do.

Towards 2022

While no amount of crystal ball gazing will reveal what exactly will happen this year, it’s fair to say that the carbon market will continue to attract a lot more attention, investment and drive further ambition.

Amidst this, it will be more critical than ever for organisations to work with trusted counterparts who are in the market and know how to navigate its many risks.

If you are one of these organisations, you know where to find us this year.

Important information

This information has been prepared by Tasman Environmental Markets Australia Pty Ltd (TEM), a corporate authorised representative (ABN 97 659 245 011, CAR 001297708) of TEM Financial Services Pty Limited (ABN 58 142 268 479, AFSL 430036). This material is for general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation, or needs. While we believe that the material is correct, no warranty of accuracy, reliability, or completeness is given, except for liability under statute which can’t be excluded. Before making an investment decision, you should first consider if the information is appropriate for your circumstances and seek professional financial advice. Please note past performance is not a guarantee of future performance.