The excess of credit issuance relative to retirement continued in 2023, though the gap narrowed slighly for VCS-registered credits. This diminished gap for VCS credits is assumed to be a result of the ancitipation of the new REDD VM0048 (Consolidated Methodology) release in December, as well as the inactivation of the paddy methane methdology.

Across the four registries (VCS, GS, ACR and CAR), total credit retirement in 2023 was 163M tCO₂, a decrease of roughly 2% compared to FY2021. Of the credits retired in 2023, 115M were VCS-registered, with GS, CAR and ACR following in terms of retirement volume.

Anonmyous records account for the majority of credit retirements in 2023. If the “Environmental Services” sector (which includes Toucan Token) is excluded, it can be seen that overall demand across sectors has increased since 2021.

Sectors for which credit retirements increased in 2023 include energy, automotive, and transportation (land and maritime). Sectors for which retirements decreased in 2023 include aviation, TMT (tech/telecommunications), and consumer goods.

Renewable energy-based energy efficiency credits continue to account for the majority of credits retired by project type. However, over the past three years, the proportion of nature-based projects credits (e.g., REDD, Nature Restoration) has increased.

The types of credits retired by each registry are as follows:

December is generally the month in which credit retirements is the highest, and December 2023 saw particularly high retirement compared to the two years prior. Notably, Shell, which has been retiring large volumes in February of each year for the past few years, had a particularly large impact on retirements in December 2023.

In 2022, the energy sector had the largest number of credit retirements, followed by the aviation sector.

The volume of credits retired by the aviation industry in 2023 decreased significantly compared to 2022. In the consumer goods sector, credit retirements decreased, and the composition of companies retiring credits changed. For TMT, despite a drop in overall volume of credit retirements, the composition of companies retiring credits did not change significantly.

The overall volume of credits retired by the energy sector increased in 2023, in particular the number of retirements by the company Shell. The energy sector tended to favor nature-based credits.

Energy companies commonly emit between 50 and 100 million metric tones of CO2 in just Scope 1 and 2 emissions alone. Despite anticipation that energy companies will increase emission reduction efforts in the future, it is expected that the emissions reductions will not be complete and that residual emissions will persist.

Total credit retirements by healthcare companies, even when considering the entirety of the sector, still fall below 1MtCO₂. In 2020, Takeda Pharmaceutical retired over 1MtCO₂ in credits, but in the past three years, healthcare companies have tended to retire volumes closer to the 100k-200k tCO₂ range. On the other hand, the healthcare sector has signaled strong desires to invest, and thus credit retirements are anticipated to be signficantly higher by 2030 (see below).

Credit retirement in the consumer goods sector decreased significantly in 2023 compared to the previous two years. A reduction in credit retirements by Nespresso and Nestle strongly influenced this change.

Despite only a limited number of companies being displayed, it is evident that Scope 3 emissions account for the vast majority of emissions among consumer goods companies. We are seeing a shift from offsetting to insetting among such companies.

The volume of retirements by Gucci and Chanel dropped significantly, resulting in a low retirement volume for the fashion sector as a whole.

The drop in retirement volume by Delta Airlines to near zero had a major impact on total credit retirement by the airlines industry as a whole. (However, with phase 1 of CORSIA implementation starting in 2024, the demand for CORSIA-eligible credits is high.)

The Volkswagen Group (which comprises all companies listed except Continental) has been leading the automotive sector in credit retirements. While the retirement of energy efficiency credits has been high in 2022 and 2023, the share of nature-based credits, mainly REDD, is also growing.

Although the Technology and Telecommunictions sector comprises a variety of players, high-profit tech companies such as Netflix, Apple, and Microsoft are actively procuring high-priced nature-based credits, in particular Nature Restoration credits.

Participation in the voluntary carbon market among the land and sea transportation sector in still limited, though Japan’s Yamato Transport (ground) and France’s CMA CGM (maritime) retired not insignificant volumes of credits in 2023. With the tightening of decarbonization targets set by the IMO, efforts to decarbonize are expected to accelerate for the sector as a whole.

Though the proportion varies by sector, roughly 10-20% of companies in each sector have announced their intention to offset emissions using carbon credits.

Within each sector, more than half of companies have declared long-term goals for addressing emissions.

Among the companies that have announced their intention to offset emissions using carbon credits, virtually all have also set long-term targets for addressing emissions. Among the companies that have set long-term targets, the percentage of companies that have announced an intention to use offsetting varies by sector. Excluding the aviation sector (78%) and fossil fuel companies (45%), the number of companies by sector that have announced offsetting plans is between 25%-45%. The consumer goods sector had the lowest rate (20%).

This represents companies’ intention to offset residual emissions after achieving long-term emission reduction targets.

The target achievement year for long-term goals are generally distributed between 2030 and 2050 (excluding the aviation sector). Given this information, the demand for offsets is expected to increase in the years leading to 2030.

In Japan, although the percentange of companies that set long-term emissions targets is quite high, the percentage of companies declaring carbon offsetting among them is low (~20%).

Registry applications have been rapidly increasing since 2022. Note that many of these project list their activity as beginning around 2020 (or later; data before 2010 are hidden)

2022 and 2023 both saw additions of REDD and Nature Restoration projects to the pipeline in numbers exceeding the cumulative number of projects registered for each project type in the years before 2022.

On a volume (annual ER) basis, the number of Nature Restoration projects has increased more than REDD in the past two years.

On the basis of number of projects, more than twice as many projects are coming into the pipeline as those that are already registered. Notably, the number of ALM projects entering the pipeline is rapidly increasing.

On the basis of ER volume, the proportion of ALM credits is larger than the proportion of number of ALM projects compared to the total. In addition to a relatively large number of ALM projects, many of the projects are large in scale, resulting in the scale of the pipeline projects being comparable to that of REDD.

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Many WRC and REDD projects are large-scale, but ALM has numerous projects on the scale of annual ER exceeding 1M tCO2.

In addition to the REDD and largee-scale WRC projects in Indonesia, there are many large-scale ALM projects in the pipeline, with ALM accounting for roughly half of the top 20 projects by annual ER.

We do not cover this section that much. We provide detailed project due diligence services for early finance nature-based projects. Please refer to the final section to learn more about our services.

Annual ER per ha is the very first metric to assess the quality (for post issuance projects) and validity of business plan (for early finance cases). That of ARR basically corresponds to the annual tree growth, whereas that of REDD and WRC (peatland) correspond to the assumed baseline deforestation rate. Note that high number for peatland can generally be justified considering the high microbial decomposition rate in the baseline scenario (due to drainage to convert to plantation).