IETA GHG Sentiment Survey 2021: Recovery from COVID-19 expected to provide a boost to global carbon markets

GENEVA, 14 June – Carbon markets around the world are poised to shrug off the impact of the COVID-19 pandemic and see higher prices between 2025 and 2030, according to IETA’s latest annual Market Sentiment Survey.

Three-quarters of respondents to the survey, carried out by PwC UK’s Sustainability and Climate Change team for IETA, believe carbon markets globally have remained resilient to the impacts of COVID-19, and the same number believe that recovery from the pandemic will strengthen global carbon markets.

The full report is available here.

Prices in the EU Emissions Trading System (ETS) have more than doubled since the beginning of March 2020, when the pandemic first started to impact economic activity across the bloc. Prices in other carbon markets have also risen, though by smaller increments.

“Calls to build back better from the pandemic are aligning with increased climate ambitions both from governments and business to give the world much-needed optimism for the future, reflected in this year’s survey,” says IETA’s CEO and President Dirk Forrister. “Heightened focus on achieving net-zero emissions from a myriad of actors will have a big impact on carbon market growth and bring more attention to the power of markets to deliver on climate ambitions.”

“Price expectations hit record highs in this year’s survey, with carbon prices expected to increase across all emission trading schemes,” says Ian Milborrow, PwC Partner. “Earlier this year, China and the UK launched their national emissions trading schemes, and it is increasingly clear that countries see carbon pricing as a central pillar to deliver on ambitious emissions reduction targets.”

Most respondents to the survey indicated that a successful agreement on implementing Article 6 of the Paris Agreement is essential to achieving the global goal of net zero emissions by the middle of the century, though most are doubtful about whether such a deal will be reached this year when countries meet in Glasgow.

Carbon border adjustment mechanisms (CBAMs) were also a hot topic in the survey, with nearly 75% of respondents saying the EU should introduce a CBAM that would also lead to an end to free EU ETS allowances, while two-thirds expect that US President Joe Biden will introduce a similar measure.

On voluntary markets, nearly half of respondents believe that voluntary carbon markets can supply enough carbon credits to match the growth in demand from corporations. One-third of all respondents are exploring the use of Natural Climate Solutions and reforestation/afforestation schemes respectively, as part of their net zero and market growth strategy.

“Carbon pricing is vital to deliver the crucial price signals to drive the innovation and transformative decarbonisation the world’s economies need if we are to achieve the Paris climate goals,” Forrister says. “This decade is our last best chance to avert catastrophic climate change – we need leaders from both the public and private sectors to broaden and deepen their carbon markets.”

“Across the private sector, internal carbon pricing will be a vital tool to help businesses deliver on their net zero strategies and align with new government policies,” Milborrow adds.

The survey covers recent progress and expectations for compliance and voluntary markets across several geographies, as well as ahead of COP26.

Key findings from this year’s survey:

1. Increased optimism on carbon price expectations as climate ambitions ramp up. Expected prices for 2025 and 2030 have increased for every market surveyed, in comparison to last year’s survey.

2. Carbon markets have been resilient to COVID-19 and the recovery from the pandemic will provide a boost. This is consistent with last year’s sentiments that markets will recover within two years.

3. Article 6 is seen as key to achieving the Paris Agreement, but participants are uncertain as to whether Parties will reach a consensus at COP26. An overwhelming majority (89%) of respondents believe that Article 6 is essential or will play an important role in achieving the goals of the Paris Agreement.

4. Border Carbon Adjustment (BCA) mechanisms are seen as increasingly likely in the US and Europe.

5. Participants said that the EU’s top priorities to reach its 2030 target should be to expand emissions trading to additional sectors and to strengthen the annual cap-setting reduction trajectory.