While many agree that a global carbon price would be the most efficient way to reduce the world’s carbon dioxide emissions, few see the price materialising any time soon. While there are currently 64 carbon pricing initiatives around the world (at national, subnational and, in the case of the EU, regional level), there is no single agreed global carbon price. Instead, ambition varies between jurisdictions, as noted by the International Monetary Fund, with an average carbon price of $3 per tonne. This compares with the record high $50 of the EU’s emissions trading scheme (ETS) in May this year.
Markets see the EU ETS as an increasingly important driver to reduce carbon emissions in the region, according to Refinitiv Carbon Market Survey 2021 — far more impactful than other EU or national climate policies. Refinitiv states that 68% of emitter respondents say the EU ETS will make them reduce emissions or plan reductions. This is an increase from 46% in 2020 and 58% in 2019. The European scheme is also a “decisive factor” for investment decisions for 63% of total respondents, compared to 27% in 2020 and 52% in 2019.
Markets expect Brexit Britain’s new ETS to link up to the EU’s reinvigorated scheme: a fifth of respondents believe this will happen as early as next year, while more than 70% think it will be done by 2025 instead. Meanwhile, the ETS officially launched earlier this year by the world’s largest polluter, China, is expected to expand to the iron and steel sector next, after initially only including fossil power generation. China’s ETS will be broader than Europe’s in terms of the emissions it covers, but trading volumes will likely lag behind. During the first year of trading, Refinitiv’s survey respondents expect that national emission units will be priced at an average Rmb37.7 ($5.83) per tonne.
