Towards efficiency: Carbon credit pricing and risk part II
Here are some key takeaways
Our analysis reveals that each BeZero Carbon ratings notch added an average premium of around 30% to the price a credit commanded in the market. This study utilises Viridios AI prices and corroborates our previous findings using a different dataset.
This relationship between price and ratings exists at a sectoral level and is particularly evident for Nature-Based Solutions (NBS) projects, which had an average 20% premium for each BeZero rating notch. Among NBS projects, the Improved Forest Management (IFM) sector exhibited the largest price divergence between higher- and lower-rated projects, although this conclusion is based on a small sample size.
Furthermore, we find evidence of a direct causal link between the assigning of ratings and price/demand for NBS credits. Projects assigned lower ratings had larger price declines than the NBS average, while projects assigned higher ratings maintained their value. Additionally, projects assigned higher ratings witnessed a considerable increase in demand in recent months.
Contents
Introduction
Using a new pricing dataset, we again find a meaningful correlation between BeZero ratings and price
Focussing on nature-based projects only, we continue to find a meaningful correlation between rating and price
Even within specific nature-based sectors, higher-rated projects tend to attract higher prices on average
Nature-based projects assigned lower ratings have seen prices fall more than those assigned higher ratings
Nature-based projects assigned higher ratings have seen demand rise considerably in recent months
Concluding remarks