Nature-based solutions dominate H1 carbon credits issuance

Carbon credits issued through nature-based solutions accounted for 37 percent – or 53 million credits – of all issuances in H1 2023, according to data from Climate Focus. A total of 143 million credits were issued in the first half of the year across global voluntary carbon markets.

Renewable energy was the second highest source of credits, with 39 million credits (27 percent) issued through power generation projects.

The international advisory predicts 326 million credits will be issued by year-end, representing the second highest year for issuances on record, behind only 2021 when 354 million were issued.

Despite NBS issuances representing the biggest source of credits so far this year, the segment has experienced a near 10 percent decline in comparison to H1 2022 (58 million issuances).

Climate Focus also highlights the lack of NBS credits resulting from carbon removal, with less than a third of the segment’s total coming from removal activities such as afforestation, improved forest management, regenerative agriculture and wetland restoration.

The majority of NBS credits came from avoided deforestation, avoided conversion and reduced emissions in agriculture resulting from practice changes.

Top 10 countries for nature based solutions

The top 10 countries hosting NBS projects generated 89.77 percent of the total NBS supply recorded in H1 2023 (53 million).

“Peru and Cambodia dominated the supply side in H1 2023, issuing nearly half (45 percent) of all NBS credits so far this year. Since the inception of the voluntary carbon market [in 2002], the top three NBS credit supplier countries include Peru (85.34 million), Indonesia (75.44 million) and Brazil (71.17 million).

Retirements of credits plateau

Retirements of carbon credits in H1 2023 plateaued at similar levels as last year (79 million).

“If the past H2 retirement trend holds, we predict that in total 165 million credits will be retired by the end of 2023. This would set a new record. The H1 2023 retirements represent nearly 10 percent of all retirements since the market inception [in 2002],” said Climate Focus.

In 2021, 161 million credits were retired against 353 million issuances; in 2021 155 million credits were retired against 279 million issuances.

Climate Focus’s live online database shows there is a total of 756 million unretired credits in the market.

Report author Szymon Mikolajczyk told Bloomberg the discrepancy between carbon credit issuances and retirements could partly be due to buyers purchasing credits speculatively, or for future use.

“These all contribute to a growing volume of non-retired credits, but do not by themselves indicate dropping aggregate demand. The price is a better reflection of demand,” Mikolajczyk said.

Energy’s influence wanes

Issuance levels for renewable energy projects declined back to 2020 levels, with the drop to 39 million credits in H1 2023 representing a 25 percent fall compared to the same period last year.

“Leading project types include large-scale wind power activities (16 million), followed by largescale hydropower projects (13 million) and large-scale solar power projects (6 million),” said the report.

“Discounted pricing for large-scale renewable energy projects is one explanation behind this trend, which is compounded by supply restrictions caused by activities coming to the end of their fixed-term crediting periods.”