PRICES: Carbon prices have been consolidating after a 2021 surge, but development is accelerating under surface. It’s a big week for Europe’s adoption-leaders, with expanded ETS* plans set for approval, with worldwide implications. Whilst the latest data shows adoption building globally, but still a long way to go. Costing carbon will continue to broaden and rise, pressuring polluters (XLE) in the long term, whilst boosting the structural outlook for renewables (@RenewableEnergy). The ‘KRBN’ alternative commodity ETF tracks European and North American carbon markets. It is flat this year, lagging commodities but besting all other assets.
MORE COMING: The EU is set to vote this week on more aggressive carbon reduction targets, continuing to push the global pace as the most developed carbon market (see chart). The plan is to 1) cut the amount of overall emission allowances, and to phase out free allowances, reducing supply. 2) Introduce a border adjustment tax for 2030, effectively globalizing its carbon price given the sheer size of the EU market. 3) Expand to more sectors, like shipping and real estate.
GLOBAL CONTEXT: Revenue from the 68 carbon pricing regimes globally rose 60% last year to $84 billion, per the World Bank. These cover 23% of global greenhouse gas emissions (GHG), accelerating significantly in 2021 with China’ market introduction. But only a fraction of these, and internal company pricing, are consistent with US$50-100/t prices seen needed to hold temperature gains to 1.5%. This implies higher carbon prices (see chart), and more coverage.
All data, figures & charts are valid as of 06/06/2022