More ambitious climate policy is seen as an important price driver for European emission allowances by 68% of the respondents. Some 61% say trading for financial investment (not for compliance purposes) is an important driver. The traditional price drivers (adjacent energy markets and weather) are seen as less important.
The 2021 Refinitiv Carbon Market Survey reveals higher price expectations in key markets, and a growing perception that cap-and-trade systems deliver emission abatement in a way that makes the cost of CO2 crucial for investment decisions.
Carbon prices hovering around 50 Euro/t
The findings, collected in March-April, show an overall more bullish sentiment compared to one year ago, when the survey was conducted against the backdrop of Europe’s first corona lockdown, and plummeting prices of energy commodities, including carbon emissions.
Anders Nordeng, senior analyst at Refinitiv Carbon Research and lead author of the survey report, comments: “The views expressed back in March, and the developments since then, show just how rapid and steep the price rally is. Prices are currently hovering around €50/t, which is actually the range respondents predicted for 2022.
UK ETS will launch trading on 19 May
“We believe the survey results reflect a much higher cost awareness among European utilities and industries following the last months’ steep rise in the price of emissions allowances.”
The new standalone UK ETS will launch trading on 19 May. Most respondents expect early UK prices to align with the level observed in the EU ETS. Some 50 percent expect linking between the two systems to be in place by 2025, one in five think already next year.
Anders Nordeng, comments: “Surprisingly, respondents assume a very quick linking between the UK ETS and the EU ETS. Even though the UK system is modelled on the European one, linking will require a political treaty.”
China`s emission trading systems started in January
China launched a nationwide emission trading system in January, building on eight years’ experience with regional pilot markets. Some 65 percent of the respondents expect trading to start by the end of this year.
Yuan Lin, senior analyst at Refinitiv Carbon Research in Beijing, comments: “Government officials have pushed for trading of allowances to start by the end of June, but only 24% think the first trade will occur in the first half of the year.”
EU prepares for Carbon Border Adjustment Mechanism
Currently, the Chinese ETS covers only fossil power generators, but more industry sectors are set to be added gradually. Respondents see metals as the top candidate for the first scope expansion.
Did you miss that? A plea for direct C02 pricing
Yuan continues: “We attribute the expectation of steel’s inclusion mainly to Chinese steelmakers’ awareness of EU preparations for a Carbon Border Adjustment Mechanism (CBAM).”
CBAM is an instrument that threatens to put a levy on emission intensive imports such as steel, unless these are subject to some form of carbon pricing equivalent to Europe’s. (hcn)
