January 2025 VCM Updates: Section A

This article is an automatically translated version of the original Japanese article. Please refer to the Japanese version for the most accurate information.

sustainacraft Inc. newsletter. This article is Section A (Market Trends) of VCM Updates (Voluntary Carbon Market Updates).

«VCM Updates Structure»

A. Voluntary Carbon Credit Market Trends ← Subject of this article

1. Credit Issuance, Retirement, and Investment Trend Analysis

2. Project Pipeline Analysis

3. Detailed Explanation Section

   1. Investment in Nature-based Projects

   2. Case Studies of Credit Retiring Companies

   3. Project Pipeline Case Studies

B. Trends in Major Overseas Regulations

Introduction

Regarding Credit Issuance, Retirement, and Investment Trends, and Project Pipeline Trends

December is typically a month with high retirement volumes, but the volume in December [2024] was not as high as that of December 2023. The total retirement volume for the full year 2024 was 163 M tCO2, bringing the annual total to a level roughly equivalent to 2023. For an annual summary, please refer to our previous article here. The chart below shows monthly retirement volumes.

Regarding investment trends, including last month's data, significant investments by Japanese companies in nature restoration projects primarily take the form of investments in forest funds. On the other hand, investments by overseas companies and Carbon Dioxide Removal (CDR) buyers' clubs, for the projects introduced this time, were observed to be direct investments in the projects themselves, rather than in developer equity.

Regarding new project Pipelines, as we report monthly, many projects using Methodologies such as VM0047 (Afforestation, Reforestation and Revegetation - ARR) and VM0042 (Agricultural Land Management - ALM), which involve afforestation/reforestation and Regenerative Agriculture, are being submitted. Projects are also being submitted in places like the UAE in the Middle East, where ARR projects have not been widely developed until now.

In an older article, The Economics of Forest Projects, we introduced several academic papers on "opportunity costs" in forest projects and cost-benefit assessments of forest projects using opportunity costs. As demand for Carbon Dioxide Removal (CDR) grows and carbon prices rise, a scenario where ARR projects become viable in locations where they were not feasible at previous carbon prices is now possible. This trend, which is already emerging, can be interpreted as the realization of climate finance that was not possible at previous carbon prices, as the market places a higher value on carbon benefits, exactly as discussed in the "Economics" article. However, in many cases, there are no past precedents for similar projects, or information on suitable tree species selection for specific locations is lacking, necessitating careful evaluation.

Regarding Buyer-Side Trends

Following last month, this month we will continue to cover trends in the financial sector, specifically those concerning the Net Zero Banking Alliance (NZBA). As previously mentioned last month, between early December last year and January this year, six American banks and five Canadian banks withdrew from the NZBA. While no explicit reasons for their withdrawal were provided in official statements from the banks, it is clear that political pressure from the US Republican Party is a factor.

A. Voluntary Carbon Credit Market Trends (Verra)

A-1: Credit Issuance, Retirement, and Investment Trend Analysis

- Analysis Target Registries: Verra (VCS), Gold Standard (GS), Climate Action Reserve (CAR), American Carbon Registry (ACR), Puro (Puro.earth), Isometric
- Period: December 2024
- Notes: Please note that companies retiring Credits are not obligated to register their actual names with the registries, and therefore, accuracy cannot be guaranteed. Additionally, there may be delays in reflection within the registries, so please be aware that the number of projects and their status might change for this period in the future.

Issuance and Retirement performance for the current period are as follows (figures in parentheses show year-on-year change):

• Issuance Performance: 33.12 million (+37%), of which nature-based: 10.72 million (+66%)
• Retirement Performance: 22.9 million (-38%), of which nature-based: 10.03 million (-45%)

Below are the top 10 projects for which Credits were Issued during the current period.

The list below shows the top 10 nature-based projects with the highest Retirement volumes during the current period.

The top 10 companies that Retired Credits from nature-based projects during the period are listed below. Given the series of news from December last year to January this year about major US financial institutions withdrawing from the Net Zero Banking Alliance, this month's newsletter will feature Retirement trends in the financial sector.

- Period: December 2024
- Notes: This section covers investments in nature restoration, REDD+, and nature-based CDR projects. Furthermore, "Credit Volume" and "Investment Amount" may represent future projected values.

In December, there were 9 significant investments in nature-based projects.

A-2: Project Pipeline Trends

Analysis Target Registries: Verra (VCS), Gold Standard (GS)
Period: December 2024
Notes: Please note that there is a slight time lag in reflection within the registries, so the number of projects and their status may change for this period in the future.
Terminology: Annual ER refers to the annual Emission Reduction / Sequestration volume (tCO₂e).

In this section, we first introduce new Pipeline projects, and then review significant changes in last month's Pipeline that were not reflected in the previous newsletter.

The Pipeline includes a total of 14 projects of all types, with the following 7 nature-based projects. In this newsletter, we will cover VCS-5382 and GS-13001.

In last month's newsletter, the November Pipeline included a total of 3 projects. However, after the latest data update, 6 new projects were added. Among these, VCS-5347 and VCS-5348 have higher estimated annual ERs than the projects introduced last month.

A-3: Detailed Explanation Section

This section provides a more detailed explanation for some of the retiring companies, investment projects, and Pipeline projects mentioned previously.

This section introduces information regarding investments in nature-based projects announced last month.