The report put together by Refinitiv Carbon Research analyses the main market trends and policy developments in global emission trading systems, and areas where such systems are emerging. The report also covers developments in international aviation emissions, in voluntary carbon markets and in the new markets that might emerge under Article 6 of the Paris Agreement.
European prices soared in anticipation that the new target of reducing emissions by 55 per cent by 2030 will require a substantial recalibration of the European Emissions Trading System (EU ETS) and lead to a tighter market balance, leaving less room for emissions. The European Commission has presented a raft of legislative proposals that are now being processed in the European Parliament and among the member states in the Council. Among the most controversial ideas is the creation of a new parallel ETS for emissions from road transport and heating.
European energy dynamics more complex
The current cost of emitting a tonne of CO2 in Europe – close to €90 – is seen by some as proof that cap-and-trade is finally working as intended and will help incentivise further abatement. That said, the European energy dynamics in 2021 showed a more complex picture.
Anders Nordeng, Senior Analyst, Refinitiv Carbon Research & lead author of the report, comments: “High prices are fundamentally a sign that the market is pricing in the cost of transition to a greener economy. It shows confidence in climate targets and in emission trading systems as tools to meet them.”
See also: Higher carbon price drives companies to reduce emissions
Ingvild Sørhus, Lead Analyst, comments: “More expensive emission permits hit coal power plants relatively harder than gas plants, but because of the soaring gas prices in the second half of 2021, coal generation was still more profitable.”
China launched own ETS
China launched its national emissions trading system in July 2021 with only power generators included and so far, volumes and prices have been modest as most of the covered emitters entered this new market in a prudent learning mode. Luyue Tan, Analyst, Refinitiv Carbon Research, and author of the China chapter of the report, comments: “The fact that companies were allowed to cover some of their emissions using cheaper offset units had a dampening effect on Chinese permit prices. Looking ahead, China’s emissions intensity benchmark for the power sector upon which compliance requirements are calculated, will decrease around 8 per cent from its 2019-2020 allocation level. This will lead to tighter supply, which should in turn provide upwards price support in 2022.”
Growing demand for voluntary carbon market
Maria Kolos, Analyst, Refinitiv Carbon Research, and author of the Voluntary Carbon Markets chapter, comments: “There is also growing demand in the so-called voluntary carbon market (VCM). Companies and individuals increasingly purchase ‘offset’ units generated by projects that reduce emissions to become ‘carbon neutral’ or pursue a ‘net zero’ strategy. VCM volume and value are still small compared to the size of mandatory systems. VCM has great potential for growth, but it can also be complementary to an ETS.” (mfo)
