21 May 2009 Voluntary Market – Research Note

Contents Voluntary Carbon Index, March-April

1. Market Overview
2. Market Trends
3. Appendix: Methodology
1 2009
2
4 1. Market Overview
The voluntary carbon market continues to struggle this year, both in terms of prices and trading
activity. This is largely due to a demand glut as a result of the global economic recession and an
oversupply of voluntary credits caused by the bureaucratic delays that plague the Clean
Development Mechanism (CDM) approval process.

New Carbon Finance’s Voluntary Carbon Table 1: Voluntary Carbon Index (VCI)
Index, which tracks bimonthly price trends of
over-the-counter (OTC) transactions on the US$/tCO2 Jan/Feb Mar/April
wholesale market, decreased by 6% from
Jan/Feb price levels (from $5.2/t to $4.9/t). VCI 5.2 4.9
Prices do, however, seem to have stabilised
Source: New Carbon Finance
after their precipitous decline earlier in the
year.
Although tracked trading activity increased by 33% since Jan/Feb (from 0.9Mt to 1.2Mt), it is still
down 56% from 2008 levels (a bimonthly average of 2.86Mt). US-based offsets comprised 83%
of volumes tracked, in line with our expectation that the US pre-compliance market will continue
to support the voluntary market as discretionary corporate budgets are cut as a result of the
recession.
New Carbon Finance’s VCI covers approximately one-third of global voluntary transactions and
can therefore be regarded as indicative of the market’s intra-year movements.

Figure 1: Voluntary Carbon Index (VCI), OTC Prices and Transaction Volume

9 3.5
8.4 VCI Transaction Volume
8 7.3 7.5 VCI Average Price 3.0
7
Average price (US$/tCO2e)

2.5
Volume (MtCO2e)

6
5.2
5 4.9 2.0
3.0 2.9 2.7
4 1.5
3
1.0
2
1.2
0.9 0.5
1

0 0.0
Jul-Aug Sep-Oct Nov-Dec Jan-Feb Mar-April

2008 2009

Thomas Marcello Source: New Carbon Finance

+1 646-214-6172
tom.marcello@newcarbonfinance.com Prices on the Chicago Climate Exchange (CCX) decreased by 7% in Mar/April from Jan/Feb
levels ($1.84/t to $1.71/t), but have dropped precipitously since then and now hover just over

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Voluntary Market – Research Voluntary Carbon Index, March-April 2009
Note
21 May 2009

$1.40/t. Considering the extent to which the CCX is over-allocated any upward price movement
will have to depend on pre-compliance speculation, and even that seems unlikely considering
prices have been unresponsive to the current political momentum on the Hill to design and pass
cap-and-trade legislation.
Prices for Certified Reduction Tonnes (CRTs) on the Chicago Climate Futures Exchange (CCFE)
sold for $6.1/t in April and $6.2/t in March, small decreases from the $6.3/t February price. CRT
prices have broadly followed the slight downward movements in the VCI. However, trading
remains extremely patchy with only 49kt sold during March and April.

Figure 2: Historical Prices for the Voluntary Carbon Index (VCI), the Chicago
Climate Exchange (CCX), and Chicago Climate Futures Exchange CRTs
10 VCI Average
CCX Monthly Average
9
CRT (V09) CCFE Monthly Average

6
US$/tCO2e

0
Mar

Apr

May

April
Feb

Nov

Dec

Feb
Jul

Oct
Jan

Jun

Aug

Sep

Jan

March
2008 2009

Source: New Carbon Finance, CCX, CCFE Notes: CCX data non-volume weighted average across vintages

2. Market Trends
We identified the following trends in the voluntary carbon market during March and April:

Prices for VCS prices remain low at $3.7/t; unchanged since Jan/Feb price levels. VCS
prices are currently almost as low as offsets verified to ‘Other’ standards, a basket of less
popular and seldom used standards, as a result of a demand and supply imbalance. Since
VCS credits are generally not perceived as a likely pre-compliance credit type, demand for
VCS credits largely depends on the “pure” voluntary market, which has seen a decline in
corporate spending budgets. Additionally, project developers sitting on emission reductions
not yet registered to the CDM seek VCS verification to move their credits on the voluntary
market, which has led to an (expected) increase of VCS credits on the market.

Gold Standard prices still highest despite 15% price drop from Sept/Oct levels.
Although the Gold Standard also primarily relies on the “pure” voluntary market due to its
status as a high quality standard GS VER prices are still 162% higher than VCS prices (at
$9.7/t). In addition, trading activity for GS VERs has picked up in Mar/April. The VCI did not
track enough GS VER transactions in Nov-Feb to include GS prices in our previous reports.

CAR prices decreased by 7% from Jan/Feb levels to $6.3/t. Despite CAR representing the
premier US pre-compliance standard market prices continue to decline, now fetching $6.3/t.
This is somewhat surprising considering the legislative language in Waxman’s bill (H.R.
2454), which seems to favour the standard above all others for eligibility in its proposed
federal cap-and-trade scheme. However, H.R. 2454 as it currently stands also stipulates that
only credits with ’09 vintages or later would qualify for inclusion, resulting in pre-2009 vintages
not enticing pre-compliance demand. We anticipate CAR ’09 vintages or later to fetch above-
average prices as H.R. 2454 progresses through the legislative process.

Methane and Renewable Energy credits continue their price premiums. Both project
types are relatively more attractive to buyers; renewable energy is trendy in popular culture
and the environmental benefits easily explained; methane credits are easily quantified with
reliable technology and have relatively higher chances for pre-compliance eligibility. RE
offsets increased by 7% from Jan/Feb levels (at $6.3/t); methane offsets by 22% (at $6.2/t).

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Voluntary Market – Research Voluntary Carbon Index, March-April 2009
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21 May 2009

RE offsets are generally more popular among “pure” voluntary buyers whereas methane
offsets attract pre-compliance demand. However, there is evidence suggesting methane
offsets appeal to “pure” buyers as well because methane offsets originating outside the US
and Canada––where pre-compliance demand is non-existent––sold for $7.6/t, 23% higher
than US originated methane offsets (at $6.1/t).

Transactions outside of North America trade in small clips and higher prices. Despite
the low volumes tracked for offsets originating outside of North America, trading was quite
active albeit in smaller volumes and at higher prices. International offset prices were trading at
a 12% premium to domestic offsets ($5.5/t versus $4.9/t). It should be noted, however, that
the observed price spread is not particularly significant as transaction size is an influential
price driver and the average transaction size of US-based offsets was 150.5kt, relative to
international at 24.5kt. Hence, the smaller deal size contributed to the higher price.
1
Figure 3: VER Prices by Standard Figure 4: VER Prices by Project Category
18 12
VCS Methane
15.8 10.8
16 CAR Renewables
Gold Standard 10
14 EE / Fuel-Switch
Other
8.3
12 11.4 8.0
10.8 8
7.3 7.3
US$/tCO2e

10.1 9.7

US$/tCO2e
10 6.7
6.7 6.3
8.2 5.9
8 6
7.3
6.8 6.2 6.1 5.2 6.2
6.2 6.3
6 5.8 5.1
4.2 5.5 4.4 4
4 3.7 3.7

3.1 3.4
2 2

0
July-August Sept-Oct Nov-Dec Jan-Feb March-April 0
July-August Sept-Oct Nov-Dec Jan-Feb March-April
2008 2009
2008 2009

Source: New Carbon Finance (1) Gold Standard price data Source: New Carbon Finance
interpolated from September to February

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Voluntary Market – Research Voluntary Carbon Index, March-April 2009
Note
21 May 2009

3. Appendix: Methodology
Each month NCF collects price, volume, standards, and project type data from a wide range of
participants in the voluntary carbon market. The US bias in our 2008 reports has largely been
eliminated due to increased participation form international offset suppliers. Project developers
and aggregators report sales prices, wholesalers and retailers report purchase prices (from
project developers and aggregators), and brokers report closing prices. All prices are volume-
weighted and are only shown when multiple data points are available.
Prices for standards are volume-weighted to derive the average price for each standard, then
weighted according to the proportion of the standard is utilised in order to generate a price
representative of the overall market. Using our transaction data for the period July 2008 to
February 2009 the Voluntary Carbon Standard (VCS) is weighted at 42%, the Climate Action
Reserve (CAR) at 17%, the Gold Standard (GS) at 14% and all other standards at 27%. For
instances in which we lack transaction data for the Gold Standard we use the bimonthly average
of bid-ask prices for GS VERs (across vintages) reported in Tullett Prebon’s VER Monitor as a
proxy. This is only used to derive the GS VER price to incorporate in the VCI average.
Essentially, the VCI tracks the price of carbon credits at the wholesale level and is considered to
be an accurate assessment of pricing trends in the voluntary market. The VCI covers
approximately one-third of global voluntary transactions and can therefore be regarded as
indicative of the market’s intra-year movements. However, it should be emphasised that the VCI
can only give the average picture. Given the illiquidity of the market at present and the many
different transactions (size, contract structure, etc) that can be done individual project prices may
diverge from the values shown in this report.

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Contact Details Milo Sjardin milo.sjardin@newcarbonfinance.com
Head, North America +1 646 214 6168
Thomas Marcello tom.marcello@newcarbonfinance.com
Analyst, NCF North America +1 646 214 6172
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