GENEVA, 23 June – 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 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. By comparison, the December 2020 EUA futures closed at €24.16 on 19 June.
“It would be unusual for any market to be feeling as optimistic now as it did a year ago,” says Dirk Forrister, IETA CEO and President. “However, it is encouraging that political will remains undimmed, and has even grown stronger in many jurisdictions as lawmakers understand that the post-COVID-19 recovery is an unparalleled opportunity to embed a sustainable and low-carbon pathway to our future.”
The survey report will feature in a discussion during IETA’s Carbon Market Virtual Series event today at 1600 CET/1000 EDT. The report can be downloaded from the IETA website.
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.
“The coronavirus pandemic has had an incontestable impact on the price outlook for carbon markets worldwide,” says Stefano De Clara, IETA’s Director of International Policy. “But what is most encouraging about the survey findings is that this is only viewed as a temporary challenge, and the appetite for action remains robust and indeed is growing.”
“This survey reveals bearish sentiment around carbon prices across all emission trading regimes on account of COVID-19, with an upturn not expected for perhaps one to two years. Similarly, the expansion of carbon pricing regimes to other countries is likely to slow,” says Ian Milborrow, Partner at PwC.
“There are, however, more positive signals around the greater adoption of absolute carbon targets by corporations and a resurgence in customer interest to mitigate the environmental impacts of the products and services they choose. This should underpin pricing for voluntary carbon credits over the medium term,” he adds.
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.
NOTE: This year’s IETA survey was conducted among IETA members as well as members of the International Air Transport Association, with more than one response per organisation possible, and open from 1 April to 24 April 2020. We received responses from 137 IETA and 22 IATA member representatives, from a broad range of locations and organisation types. Participants were given some freedom to select which sections and subject matter they answered on, and therefore some answers may not add up to 100%.