Carbon market participants expect the COVID-19 pandemic to weigh on emissions allowance prices for the next two years, with price expectations for the coming decade also dropping, according to the 15th edition of IETA’s annual GHG Market Sentiment Survey.
The survey, conducted by PwC, reveals that respondents expect EU ETS prices to average €31.71/tCO2 in Phase 4 (2021-30), a reduction of 12% from last year’s €36.05/t prediction.
The poll of 137 IETA member companies and 22 airlines also showed diminished expectations for all the major emissions markets over the coming decade. Respondents expect prices in the Western Climate Initiative, which groups California and Quebec, to be 12% lower over the coming 10 years, while prices in the US Regional Greenhouse Gas Initiative will be 27% lower.
Prices in Mexico and New Zealand could see the largest drop compared to 2019 expectations, with NZ ETS allowance prices expected to be 35% lower, and Mexican prices 38% lower, than respondents forecasted last year.
This year’s survey also investigated the growth of Natural Climate Solutions (NCS) over the last 12 months, and the prospects for NCS to contribute to achieving the goals of the Paris Agreement. Around one-fifth of survey respondents felt that the biggest challenge to wide-scale investment in NCS is the lack of compliance systems that recognise the benefits of carbon storage in natural sinks, while the same number also expressed concerns over the permanence of such removals.
A survey conducted by PwC of over 100 IETA members from
across the globe has revealed considerable progress in carbon markets
over the last year, with the hope of more to come. Regional developments
in Latin America and China have given cause for optimism. Similarly, a
record increase in the EU ETS price per tonne of carbon over the last
year has been well received, as the EU ETS is still considered by many
to be the carbon price benchmark.
Confidence in China’s national ETS launching in the next two years has doubled this year, with two-thirds of respondents expecting trading to start by 2021. The future of China’s ETS is considered by many respondents as pivotal for global carbon markets, as the country’s ETS is predicted to overtake the EU ETS as the world’s largest.
Tempering this sense of optimism is respondents’ scepticism that other Asian countries will align their NDCs with the Paris Agreement by 2020. Similarly, there is a loss of confidence in Canada achieving its NDC target. This may be due to Ontario’s withdrawal from the Western Climate Initiative (WCI) and the ongoing legal challenges to Canada’s federal backstop carbon price. Furthermore, respondents expect carbon prices to be significantly lower than what they think is needed to limit global warming to below 2°C.
Nevertheless, there is hope for the future. Shareholders are demanding more climate risk action and an overwhelming 85% of respondents expect corporate voluntary offsetting to increase over the next 5-10 years. Important drivers for voluntary markets include the TCFD recommendations and investor pressure, as well as increasing commercial viability, consumer pressure, and compliance obligations. Going forward, countries will need to focus on agreeing the rules of Article 6 at COP25 in December.
Respondents to IETA’s annual GHG Market Sentiment survey are optimistic about the prospects for emissions trading around the world, despite concerns about an ambition gap between current trends and the Paris Agreement’s 2°C goal.
This year’s survey, conducted by PwC, yielded responses from 100+ IETA member representatives, from a variety of sectors and geographies. Responses showed an overall more positive sentiment towards emissions trading around the world, although an overwhelming majority caution that any shortcomings in the Chinese national ETS could have an impact on the mechanism’s reputation.And for the first time since 2011, price expectations for Phase III of the EU ETS broke above €10, with the average price in this year’s survey settling at €15.21 – almost double last year’s average.
Two-thirds of respondents to IETA’s annual GHG Market Sentiment survey think that the rise of populist political movements globally are a threat to action on climate change, despite a high level of executive engagement.
Conducted by PwC, the survey of 135 IETA members from across the globe raised widespread concerns that an increase in nationalist policies could hinder an international response to climate change, with one respondent urging market participants to go on a “PR offensive” extolling the virtues of emissions trading.
However, over three quarters (77%) of respondents said that climate change is a board-level priority – and 90% said board engagement on the issue has either increased or remained the same year-on-year.
Survey respondents are more optimistic about national and sectoral efforts, such as China’s planned national emissions trading system, efforts across Canada, and a new market for aviation. In Canada, 69% of respondents expect the federal Pan-Canadian Framework on Clean Growth and Climate Change to drive action by the provinces and territories, while an overwhelming majority expect Ontario’s new market to link to those of Québec and California.
Meanwhile, respondents’ Phase III EUA price expectations have fallen slightly this year, but remains in the €8-11 range, consistent with the past four years. Expectations for prices out to 2030 also dipped, while the majority of respondents agree that a carbon price floor is needed in the EU ETS.
IETA's 2016 GHG Market Sentiment survey
An overwhelming majority of respondents to IETA’s annual market sentiment survey expect an expansion of carbon markets, driven by the Paris Agreement.
Over 80% of respondents to this year’s survey, conducted by PwC, said they expect existing carbon markets to expand as a result of the Paris Agreement – compared with 58% last year. This will be driven by developments at both the national and sub-national level, the survey found.
By 2025, new emissions trading systems (ETSs) are seen starting up in Canada, Australia, Brazil, Chile, Japan, Mexico, South Africa and Turkey, said respondents. This is in addition to the national ETS in China that is expected to begin next year, as well as the Ontario market, the legislation for which was passed in mid-May.
The carbon price respondents feel is needed to achieve the Paris Agreement’s objective to limit warming to well below 2°C jumped by a third this year, to €40. This is in stark contrast to their expectations for prices in major carbon markets from now until 2020, ranging from €6 to €15.
Respondents to IETA’s annual market sentiment survey expect European carbon prices to rise for the first time in four years.
This years survey, conducted again by PwC, found that respondents expect the average Phase III EUA price to be €10.79 – up from €8 last year, and the first rise since 2011. Prices between 2020 and 2030 are expected to average €18.40, according to the survey of IETA’s members.
This 10th edition of IETA’s annual market sentiment survey found that respondents see a lower carbon price needed to drive low-carbon investment than five years ago, averaging €29.60 now compared with two-thirds saying a price of €40 or more is needed in 2010.
However, unsurprisingly, an overwhelming number of respondents (88%) see carbon markets as an effective policy instrument – with 58% saying markets are the most effective driver of low-carbon investment, up from 36% in 2010.
The Paris climate talks will lead to an expansion of global carbon markets, according to 58% of respondents – with strong growth seen in Asia and North America in particular. Notably, all respondents expect China to have a national ETS, with 64% expecting the market to be implemented by 2020.
An overwhelming majority of IETA members expect carbon markets to have a role in an international climate change deal, expected to be agreed in Paris next year, according to IETA’s ninth annual Market Sentiment Survey.
Over 80% of respondents to this year’s survey, conducted by PwC, expect the Paris 2015 climate agreement to pave the way for more carbon markets globally, with the potential to link them in the future. Around two-thirds of respondents (63%) believe that the Clean Development Mechanism (CDM) will continue on in some form, with most of those replying think it is likely to be reformed.
However, only a handful (4%) anticipate all major economies to face legally-binding reduction commitments from the deal.
IETA's 6th GHG Market Sentiment Survey highlights: