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While compliance regimes faced demand weakness amid slower economic growth, they proved resilient amid volatile environments. We expect the impacts to continue, with existing regimes expanding coverage and aiming for higher emission reduction targets and new regimes emerging, especially with international pressure building up by carbon border tax implementation.
The voluntary carbon market was criticised for over-crediting certain project types and suffered disappointment when the Article 6 negotiation failed at COP28. Different players in the market responded constructively, and we expect initiatives developed throughout last year to bring more transparency and guidance to the market in 2024.
But what are the key themes to look out for this year? Fill in the form to access a complimentary copy and read on for a short introduction to a few of these themes.
More countries to tax carbon at the border
The European Union implemented the first Carbon Border Adjustment Mechanism (EU CBAM) in 2023, the first of its kind to impose a levy based on embedded emissions of products. Emission monitoring and reporting will be an increasingly important agenda for global business to consider starting from 2024. It helps the global community better understand their carbon footprint and enhances the urgency to act.
The EU CBAM set a precedent for other countries. The UK announced the implementation of the UK CBAM starting in 2027. There are also discussions in countries like the US and Australia. We expect to see other countries to implement a carbon border tax or raise their domestic carbon prices.
Compliance carbon markets will continue to grow
Existing carbon pricing regimes continued to evolve in 2023 and we expect further program reviews to push up carbon prices in 2024. We also observe carbon pricing regimes extending to more sectors to drive decarbonisation in other parts of the economic activities. More countries are targeting transport and fossil fuel upstream sectors for mandatory carbon pricing obligations. Increasing government-led initiatives will provide consistent carbon price signals to wider sectors, accelerating global transition.
Carbon offset market to rely on independent organisations as Article 6 progress stalls
2023 was a challenging year for carbon market players because carbon credit issuances and retirements declined after controversial news that hit the reputation of the market. Under this atmosphere, market players had very high expectations of COP28 and Article 6 definitions. However, the negotiations failed. Given the delay for Article 6.4’s carbon crediting mechanism, the growth of the carbon offset market in 2024 is largely in the hands of independent market players
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Will integrity initiatives impact the carbon offset market as much as needed? And what new projects will emerge with developments in methodologies?