BeZero finds that better quality nature-based credits are commanding a 20% price premium

Higher quality nature-based carbon credits are commanding greater price premiums across the VCM, new research published by carbon ratings agency BeZero Carbon has revealed.

The BeZero Carbon Rating assesses the quality of carbon credits on an eight-point scale ranging from ‘highest likelihood’ to ‘lowest likelihood’ of achieving a tonne of CO₂e avoided or removed.

BeZero Carbon’s analysis from pricing data from Viridios AI’s platform, representing 134 price estimates for nature-based carbon credits in December 2023 and March 2024, revealed that the price difference between credits separated by one BeZero rating notch (e.g. ‘BBB’ and ‘A’ or ‘C’ and ‘B’) hovers around 20%.

The research finds that, even at the level of specific sectors, higher rated projects tend to attract higher prices. Most significantly, one higher-rated Improved Forest Management project commanded a 400% premium above lower rated projects in the same sector.

BeZero Carbon’s research indicates–for the first time–a direct causal link between assigning ratings to projects, and changes in the price of, and demand for, carbon credits. Lower-rated projects saw larger price declines than the average for nature-based projects, while projects assigned higher ratings maintained their value. Additionally, projects assigned higher ratings witnessed a considerable increase in demand in recent months, while demand remained low for projects assigned lower ratings.

This is one of the first significant pieces of research on the evolving sophistication of the market for nature-based carbon credits. The sector makes up the largest group in the VCM in terms of available, unretired credits, for which the deepest dataset of prices for analysis exists.

This new research published today builds on research published by BeZero earlier this year, which demonstrated that higher quality credits were commanding greater price premiums across the entire market. The analysis published today, using a different dataset, finds that across the entire market, each BeZero Carbon ratings notch added an average premium of around 30% to the price of a credit.

This new research now demonstrates a clear and statistically meaningful price-ratings relationship, which is indicative of the growing sophistication of the market and shows the importance of interrogating quality at a project level.

To date, BeZero Carbon has published nearly 430 project ratings, equipping businesses with the knowledge, tools and confidence to make informed decisions about their environmental investments.

Bertrand Le Nézet, Chief Market Intelligence Officer at Viridios AI, said:

“Nature-based solutions such as REDD/REDD+, IFM, Afforestation/Reforestation are pivotal in combatting climate change due to their scalability and cost-effectiveness. Assessing project quality has historically posed challenges, but with the emergence of independent reviews by carbon rating agencies like BeZero Carbon, this is evolving, improving transparency and integrity. We are delighted that our extensive pricing database is bolstering the evidence of quality price premiums, particularly within the realm of nature-based solutions.”

Sebastien Cross, co-founder and Chief Innovation Officer at BeZero Carbon, said:

“Our latest research demonstrates the importance of independent carbon ratings for carbon markets to unlock efficiencies and scale up. Nature-based solutions are a particularly important sector to nurture, as they make up the largest group in the VCM in terms of available, unretired credits, which we wanted to foster and develop. There is more and more evidence that ratings are shaping this crucial market, helping it to mature through an emphasis on project-level quality which more effectively reflects the risk associated with carbon projects. We’re proud to be playing a central role in the growing sophistication of this market, which is vital to deliver genuine climate action.”