The AlliedOffsets Tradable 20 provides a price for credits most commonly traded in the VCM. It differs from our existing indices in that it is agnostic to registry, project type or geography, and is limited by our project liquidity metric.
Our existing indices track movement of prices in the VCM. They show the general state of the market via the AO500, as well as registry, sectoral or geographical subsets thereof. However, the VCM is an illiquid market, with trade volumes often very low. If you were to try to buy credits from many projects on the indices, you will find them difficult to source.
So, how does one track the price of credits that are actually available to purchase? Enter the Tradable 20, an index comprising the top 20 most liquid projects in the VCM.
The Tradable 20 provides an indicative price per credit for a basket of the most active projects in the VCM. The twenty projects in the index are those with the top Liquidity Scores (meaning they have large volumes of recent retirements across multiple buyers, are offered by multiple intermediaries, and have often received at least one quality rating), and at least 1M credits available (unretired) from vintages no more than 6 years old.
AlliedOffsets is uniquely positioned to identify tradable projects, with our database of 30k carbon projects across 23 registries, over 1bn credits retired, and over 20k real credit prices recorded. We have aggregated information from more than 20 intermediaries and can provide a holistic view of market movement.
Much like the large stock indices weighted by market capitalization (e.g. S&P500), the Tradable 20 tries to reflect varying values of credits traded within the index.
At creation, the index represents $10k worth of credits from the 20 selected projects, weighted by the value of a project’s retired credits within the last year, and adjusted so that no project can contribute more than 10% or less than 1% to the index. The index will be re-created quarterly, and AlliedOffsets will track the price of the index throughout the quarter.
See full methodology description here.
The Tradable 20 represents credits that are easy to source and, as such, it can be recreated. In the future, such an index could be the basis of a futures market, options creation and cashless exercises of contracts. The volumes introduced by index-based trading would allow investors to use the benchmark for hedging, ultimately protecting them from the wild price fluctuations in the VCM and encouraging sorely needed investment in the space.
AlliedOffsets has published the Tradable 20 here. In addition to indicating the price of purchasing credits in the VCM, it can be used to identify the most active projects in the market and track their price fluctuations.
You may use the index to:
Currently, the Tradable20 covers four registries, sectors and continents. Just under half of the index is renewable energy credits, followed closely by forestry and trailed by cookstoves and chemical and industrial processes. Over three quarters of the index credits are sourced from Asia, with the remainder from Africa, North America and Latin America.
The variation of projects in the index is reflected by the range of indicative prices. At the most common deliverable (i.e. lowest price eligible) vintage of 2018, prices range from >USD$1.00 to nearly USD$30.00.
Since index creation, the index price has fluctuated between $3.28 and $3.85, or 1-6% higher than the AlliedOffsets500. Still, Tradable20 projects fetch a lower-than-average price in the VCM. The index price in the first week of January was 43% lower than the weighted average price of December 2023 retirements. This is due to large trading volumes of renewable energy credits and steep price drops for some highly liquid forestry projects, e.g. Mai Ndombe (VCS934), within the last twelve months.
If you would like to purchase any credits on the index, contact us to be connected with an intermediary with recent offerings for each project.