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At the end of 2023, the Taiwan Carbon Exchange sold its first batch of carbon credits under a new set of stringent standards. Among these, a notable regulation requires that carbon credits be issued within the past five years. While certification bodies like Gold Standard (GS) argue that the vintage of carbon credits is not necessarily a priority, others, such as Singapore’s carbon tax system, only permit the use of credits issued from 2021 onwards. Does the age of carbon credits genuinely impact their value? This report dissects the implications of vintage and its role in carbon markets.
Understanding carbon credit vintage
In recent years, vintage—the issuance year of a carbon credit or the year emissions reductions were achieved—has become a key quality metric in carbon markets. Global retirement data for carbon credits (see Figure 1) reveals a preference for projects issued within two to five years of retirement. Three primary factors explain this focus on vintage:
Figure 1. Global carbon credit retirement by vintage year[1]
1. Regulatory requirements in compliance markets
Early in the European Union Emissions Trading System (EU ETS), stringent rules were applied to older credits due to concerns about the environmental integrity of credits from mechanisms under the Kyoto Protocol. Similarly, Singapore’s carbon tax permits only credits issued between 2021 and 2030 to align with its emissions reduction goals.
2. Alignment with the Paris Agreement
Many market participants prioritize credits issued post-2016, when the Paris Agreement took effect, as they view these credits as more aligned with current climate objectives. Mechanisms like the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) restrict eligibility to credits issued after 2016, further devaluing older credits.
3. Concerns over historical oversight
Older credits may reflect lower-quality methodologies or insufficient scrutiny by certifying bodies, reducing market confidence and perceived value.
"Newer is better?"
While newer credits are often perceived as higher quality, this assumption does not always hold true. Two case studies illustrate this point:
1. Market sentiment and irrational pricing
The REDD+ deforestation prevention program in Cambodia demonstrates a trend where newer credits command higher prices (Figure 2). However, price increases after the Paris Agreement’s implementation in 2016 were inconsistent, with slower growth in 2017–2018 and plateauing after 2019. This suggests that market sentiment, rather than objective quality, often drives pricing.
Figure 2. Price trends of carbon credits from Cambodia's REDD+ project[2]
2. Undervalued nature-based credits
Nature-based solutions rely on ecosystems’ carbon storage and provide additional sustainability benefits. Older credits from such projects may have greater cumulative impacts due to extended carbon sequestration and biodiversity protection. For instance, a credit issued in 2016 may have achieved four extra years of carbon absorption compared to one issued in 2020, contributing significantly to long-term environmental goals.
Regional and organizational rules for vintage requirements
Different regions and organizations apply varying restrictions on carbon credit vintage (see Figure 3). For instance:
- Taiwan: Credits must be issued within the last five years.
- Australia: No vintage restrictions.
- Gold Standard: Credits of any vintage are valid as long as they meet high standards.
- European and Singapore Markets: Some platforms do not differentiate by vintage[3], emphasizing quality over issuance year.
Figure 3. Vintage requirements for carbon credits by various organizations and regions (based on 2024)
Is carbon credit vintage important?
The short-term perspective
Vintage remains a practical quality indicator, particularly to avoid legacy credits with potential quality issues. However, as regulatory frameworks and verification standards improve, the importance of vintage is likely to diminish.
Guidelines for buyers
1. Prioritize recent vintages:
Credits issued within the last five years typically adhere to stricter standards, ensuring greater reliability.
2. Evaluate holistically:
Factors such as price, additionality, quantification methodologies, and sustainability co-benefits should complement vintage in assessing quality.
Conclusion
Carbon markets are inherently complex, and while vintage is a useful metric, it should not overshadow other critical factors. Companies purchasing or investing in carbon credits must conduct thorough due diligence and develop robust risk management strategies to navigate evolving market conditions effectively. Over time, with stricter oversight and standardized high-quality credits, the emphasis on vintage may become less critical, enabling a more nuanced evaluation of carbon credits’ environmental and economic value.
[1] Source: MSCI.
[2] Source: Quantum Commodity Intelligence.
[3] Carbon credit contracts like GER issued by Net Zero Markets do not differentiate based on vintage.