ClearBlue Markets and special guest Carbon Growth Partners delivered an essential webinar tailored to the needs of active VCM participants. In this webinar, the speakers discussed the opportunities and challenges of the 2024 VCM landscape, with specfic focus on the imperative of price transparency and how ClearBlue's innovative AI-backed Offset Price Discovery tool provides the ultimate transparency solution. Answers to many of the questions asked are below.
We invite you to watch the recording by submitting a request to download it here.
If you would like a demo of the Offset Price Discovery solution, contact our team today.
Webinar Q&A: Solving For Price Transparency in the 2024 Voluntary Carbon Markets
Q: Which standards are you considering in the Offset Price Discovery tool? What carbon registries are you monitoring?
A: All the major ones, like VERRA, GS, CAR, ACR and others. And, of course, as more registries become more data-rich, we will include those. As more offsets from different regions come to market, we will include those. It is easier for us to demonstrate this in a trial.
Q: Regarding the forecast accuracies, over what time horizon are those MAPE figures? A: We've consistently monitored mean absolute percentage figures since we started developing this model. The reference points for these checks include a more stable market period, specifically during the summer of 2023, and the current time characterized by heightened volatility, which extends from the end of December onward.
Q: Where does the AI take prices from if most of the market is OTC bilateral contracts? How are registries considered in the algorithm? What are the sources of price points? A: CBM acquires market pricing data from various reliable sources, encompassing project developers, brokers, traders, exchanges, and other key market participants. We gather approximately 600-800 data points related to trades, bids, and offers weekly. With operational footprints in North America, Europe, Latin America, and Asia, our data collection is truly global, ensuring a comprehensive and diverse dataset that reflects the multifaceted nature of the market.
Q: Can your technology able to predict future values? A: Yes. ClearBlue Markets’ technology provides current market pricing while also being able to forecast future values. The predictive aspect of our model benefits from post-processing algorithms that project future prices. Specifically, our methodology involves the analysis of Forward Curve data derived from GEO and NGEO contracts extending up to 2030. This analysis employs linear regression on these future contracts to anticipate price fluctuations, considering factors that might influence market dynamics. Furthermore, our approach includes generating a Market Analysis Forward Curve based on supply and demand projections from our most recent quarterly review. We explore three distinct scenarios—High, Most Likely, and Low—to offer a comprehensive range of potential market movements. This analysis delves into the intricacies of supply and demand to predict price changes.
Q: For the predictive value, when is it predicted for? At what point in time?
A: We are predicting as of today. So, it is with new data whenever we retrain the model or get the values. And we retrain continuously throughout the week. So these are not old values.
Q: Regarding the OPD model, is data input manually, or does AI do this? A: The data collection process for our OPD model was initially conducted manually. However, as the volume of data increased significantly over time, we transitioned to automated scraping algorithms for efficiency and timeliness and to ensure we remained aligned with market dynamics. To guarantee the accuracy and reliability of the data collected in this manner, we rigorously review all scraped data for anomalies, thereby ensuring that our dataset accurately reflects market conditions. Q: Are you also providing future prices? A: Yes, we provide a Forward Curve.
Q: Will the model include the option to select removals like biochar, IFM-tagged removals, and other tech-based removals? A: Yes, once there are enough data points.
Q: Where do carbon capture, utilization, and storage (CCUS) fit into the charts? Are they typically Industrial Emissions? A: CCUS is included in industrial emissions (Category 2)
Q: Do you keep track of the costs per carbon credit for different project types? A: No, we don't track costs per carbon credit for various project types, as we believe the market should prioritize obtaining the lowest-cost offset. Price alone does not determine quality, and the misconception that any offset below $100 is not good doesn't align with our perspective. Our focus is on maximizing true reductions for each dollar spent. Project development costs are crucial for developers, and market prices may impact their ability to produce credits profitably. It's essential to caution against pipeline estimates, assuming projects will come to market if they are not profitable at current prices. While demand seems to be increasing, prices must rise to support both profitable and non-profitable projects, ensuring a sustainable solution to the climate problem.
Q: What will happen with older vintages (<2019) that comprise most of the surplus today?
A: We observe that, in general, all else equal, later vintages command a price premium in the market over earlier vintages. The offsets do not expire, and buyers can use what they like for retirement. That said, a portion of the older vintages could be stranded. On the Vantage client portal and in our regular VCM reports, ClearBlue tracks retirements by vintage. In 2023, around 60% of retirements were V-2018 or earlier, around 40% were V-17 and earlier and more than one-third were vintages before 2017.
Q: What category do gasification and biochar fall in?
A: We needed to aggregate the data into categories to represent pricing more easily, avoiding a million lines. When you open the Vantage portal, you'll notice more lines than shown on the chart. This is due to the breakdown of different subcategories over time as needed. For instance, topics like Biochar, backs, and direct air capture (DAC) fall into what we refer to as "Category 0." We're treating Category 0 as a special case and recently released a report on it. We maintain a separate database in this category because technologies such as removals with long durability are gaining prominence, especially as regulators become more involved in achieving net-zero or even net-negative goals. These technologies in Category 0 are somewhat isolated from the rest.
We've compiled data on all forward deals related to these technologies. These deals are predominantly managed through forward contracts, with less than 5 million metric tons likely contracted so far. Only a small percentage has been delivered against these forward contracts, but all the details are in our database. It's important to note that these technologies in Category 0 tend to have high prices. For example, Biochar's price range in our database is $80 to over $300 per metric ton. For technologies like direct air capture (DAC), prices can go even higher, reaching up to $1,000 per metric ton. We have comprehensive information on these aspects and would happily discuss them further.
Q: What is your definition of"quality projects/offsets"?
A: The term "quality” concerning projects or offsets encompasses the diverse outcomes across project types. Carbon tonnage is one element, but ClearBlue also assesses the project developers, community benefits, and the type of project. For example, different impacts arise from projects like methane capture compared to renewable projects.
In the context of a ton of CO2 reduction, quality is paramount. Co-benefits contribute to overall quality, and the market is expected to account for these factors. Users can choose based on their preferences—whether focusing on co-benefits or simply seeking CO2 reduction. We are cautious with the term "quality" because many criticisms of the voluntary market have tangled in arguments about what quality is or isn’t when, at its most basic, quality denotes a project that aligns with your climate change goals. Ultimately, market dynamics will play a crucial role in shaping these considerations.
Q: Are the OPD tool values closer to primary or secondary market prices?
A: Regarding OPD tool values, it's crucial to differentiate between primary and secondary market prices. The primary market operates over-the-counter (OTC), with upfront capital, incurred costs, and risk attributes influencing prices. However, this information is typically kept private. On the other hand, the OPD tool focuses on spot price offsets, determining the present value of a spot offset. Notably, many transactions in the Direct Air Capture (DAC) realm are forward transactions, publicly disclosed but not spot pricing. Observing the spot basis trading values compared to primary market prices will be interesting as the market matures. Anticipations lean towards spot prices trading higher, although the philanthropic nature of the DAC sector adds complexity to future pricing dynamics.
Q: Any predictions for market demand for voluntary carbon credits to rebound after the problems/issues with nature-based carbon credits? A: Yes, we anticipate a rebound in 2024 after a challenging year with criticisms of outlier projects. We expect the market to move beyond these issues, recognizing the need for a broader perspective on nature protection. The iterative methodologies used for calculating credits allow for transparency and continuous improvement. While past credits are valuable, new methodologies and integrity bodies contribute to buyer confidence, fostering a consensus on acceptable, best-market credits.
Q: Are you taking trading positions on the back of your model?
A: We do not trade or take positions at ClearBlue. All our market intelligence is time-stamped and available to paying clients of our Vantage platform.