Daily Update: Positive Signs in Still-Developing Carbon Markets

Today is?Friday, December 1, 2023, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global.?Subscribe?to be notified of each new?Daily?Update.?

Companies that participate in voluntary carbon markets cut emissions faster than businesses that don’t, potentially helping to allay growing concerns about the sector’s environmental effectiveness.

Gross emissions declined 59% year over year for voluntary market participants, compared with a drop of 33% for nonparticipants, according to a study by Ecosystem Marketplace, the carbon market intelligence group of non-profit Forest Trends. Market participants also led in climate transparency and ambition, according to an S&P Global Commodity Insights report on the study.

Taking part in the voluntary carbon market indicates that a company is likely addressing climate change in its direct operations and value chains, the report said. The finding may boost confidence and liquidity in carbon markets after concerns about the efficiency of offset projects, fears that buyers would keep pumping out emissions and the fact that developing nations see little of the profits generated by offset projects within their borders.

"Far from `buying their way out of the problem,’ voluntary carbon buyers are taking advantage of the valuable role carbon credits play," Ecosystem Marketplace said.

Carbon markets are also starting to evolve in a way that may bring greater rewards for developing nations. These countries have begun trying to regain control of local offset projects so that these initiatives can support national climate goals under the Paris Agreement on climate change rather than create low-cost offsets for the corporate sector.

“[H]ost countries don’t want to sell their carbon at a reduced rate and then be short against their own targets,” Will Close-Brooks, business development director at carbon-finance company Respira International, told S&P Global Commodity Insights.

The growth of high-quality projects supported by a corresponding adjustment under the Paris climate accord may be the key to shifting carbon market benefits to developing nations. The corresponding adjustment mechanism prevents a host government from using credits from an offset project to meet national climate goals and selling the same credits in the global carbon market.?

High-quality offset projects also involve greater profit-sharing with local communities, whose participation is often vital in ensuring a successful outcome. Examples include forestry initiatives or community-based programs such as clean cookstoves or water sanitation, S&P Global Commodity Insights said.

A challenge in implementing this approach is that insufficient demand is preventing project managers from setting up initiatives on the ground. There are also legal difficulties regarding issues such as carbon rights and export taxation.

“We need a clear rulebook,” Marco Magini, executive director for climate projects at developer South Pole, told S&P Global Commodity Insights.

Another key issue in carbon markets is what will happen in Japan once the initial voluntary stage of its system ends in 2026. The Japanese government has yet to decide on the next step, Norihiro Kimura, senior climate change negotiator with the Ministry of Economy, Trade and Industry, told S&P Global Commodity Insights. Still, the government is unlikely to start setting emission-reduction targets for companies, Kimura said. Japan’s voluntary emissions-trading system, GX-ETS, started in April.

In Europe, carbon prices fell to a five-month low in late October as lower power generation and a weak economy sapped demand. Still, the market might start to rebound amid cooler weather and a drop in supply of EU allowances for emissions.?

"There is a bullish anticipation that [EU allowance] prices will increase on the back of supply restrictions and increased heat demand as we approach the winter months," according to S&P Global analysts quoted in an S&P Global Commodity Insights report.

Today is?Friday, December 1, 2023, and here is today’s essential intelligence.

Written by Neil Denslow.

Economy

Global Macro Update: 2024 Is All About The Landing

Following a synchronized rise in policy rates, growth is now unsynchronized across major economies. The US is outperforming whereas in Europe activity is flat. The common macro thread comprises strong labor markets and spending on services, fiscal tailwinds and lingering core price pressures. Inflation has likely peaked as have policy rates, but central banks are on guard against declaring victory too early. S&P Global Ratings’ higher-for-longer view applies both to policy rates and market interest rates, real and nominal. Caution among developed market central banks is constraining potential rate cuts in emerging markets.

—Read the report from S&P Global Ratings

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Capital Markets

Credit Conditions Europe Q1 2024: Adapting To New Realities

2024 looks set to be a year of adaptation to the hangovers from high inflation, high rates and high debt, against a more uncertain and volatile geopolitical backdrop. Geopolitical conflicts spilling over to Europe, a sharp rise in unemployment dragging Europe into recession and a protracted period of higher rates exposing financial vulnerabilities are the key risks.

—Read the report from S&P Global Ratings

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Global Trade

India's Reemergence For Venezuelan Crude Opens New Battleground For China

Indian refiners have started to snap up crude shipments from Venezuela barely weeks after the easing of sanctions, opening up a new battleground for Chinese independent refiners who have been the most active buyers of the feedstock from the South American supplier in recent years. "Some Venezuelan crude is now getting loaded and is on its way to India. With Venezuelan crude entering the market, it provides an opportunity for Indian refiners to seize the moment and enhance their sour crude refining margins, thereby boosting overall gross refining margins," said Sumit Ritolia, refinery economics analyst at S&P Global Commodity Insights.

—Read the article from S&P Global Commodity Insights

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Sustainability

Sustainability Insights: North American Wildfire Risks Could Spark Rating Pressure For Governments And Power Utilities, Absent Planning And Preparation

Recent wildfires leading to financial liabilities for Pacific Gas and Electric Co., Hawaii Electric and PacifiCorp in Oregon illustrate the rising credit risks that could result from the combination of regulations and the physical impacts of a changing climate.

—Read the report from S&P Global Ratings

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Energy & Commodities

Listen: Trash To Treasure: The Role Of UCO And POME In Energy Transition

Waste feedstocks in the form of Used Cooking Oil and Palm Oil Mill Effluent have been hitting headlines in the biofuels sphere — touted as the next generation of energy feedstocks. Feedstock flexibility appears to be a dominant trend over the next few years, and legislations across many countries look set to propel demand of waste-based feedstocks. In this podcast, Asia managing editor Takmila Shahid, market editor Nurul Darni, together with Head of Asia agriculture and metals news team Rohan Somwanshi and biofuels analyst Chua Wei Jun, discuss the rising appeal of UCO and POME as the coveted biodiesel feedstocks, recent market trends, trade flows and legislations that drive demand for these feedstocks.

—Listen and subscribe to Platts Future Energy, a podcast from S&P Global Commodity Insights

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Technology & Media

Fixed-Mobile Convergence Drives Bundle Adoption In Europe; Low Quad-Play Take-Up

Of the 17 European markets with regulator-reported data on bundled telecommunications services, 14 saw an increase in multiplay subscription take-up rates since S&P Global Market Intelligence’s previous report, which looked at data up to 2019. In many of these markets, growth has been driven by convergent fixed-mobile bundles, often offsetting a decline in adoption of legacy fixed-line services such as fixed telephony and multichannel pay TV. This mirrors operator strategies, which in recent years have sought to merge fixed and mobile operations and focus on connectivity, turning to partnerships with OTT streaming providers to replace costly pay TV services.

—Read the article from S&P Global Market Intelligence

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