ETS price to rise, but not by enough

2nd July 2015


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  • Carbon Trading ,
  • Reporting ,
  • Mitigation

Author

Kirit Patel

Members of the International Emissions Trading Association have forecast that the price of allowances under the EU emissions trading system will average €18.40 between 2020 and 2030.

Although the predicted price is a substantial increase on the €6.42 average allowance auction price recorded over the past 12 months, it is well below the level (€29.60) members say is necessary to drive investment in low-carbon technologies.

Meeting this level within the foreseeable future may be challenging, says IETA, although most respondents to its annual survey believe the introduction of proposed ETS market stability reserve (MSR) will help push up the average price of permits. The plan involves a portion of allowances being automatically transferred into the MSR if the surplus exceeds a specified threshold. Allowances could also be returned to the market if the surplus is below the threshold.

The majority of IETA members want the Paris climate summit (COP21) to agree a legally binding deal that includes emissions reduction targets for all major economies. Seventy-eight percent believe this would be the most desirable outcome, although 54% believe it is more realistic to expect a nonbinding reduction and limitation pledge by the major economies.

Around one-third (36%) expect carbon markets, such as the ETS, to expand as a result of COP21. More than 70% of respondents believe Japan, Australia, Mexico and South Africa will establish national carbon pricing mechanisms before 2025. And, after the Chinese government revealed plans last year for a domestic carbon market, 63% of IETA members believe it is likely that China will have a national scheme by 2020.

“Carbon market sentiment is on the rise for the first time in years. After years of low prices and policy turmoil in carbon markets around the world, business is still saying that market-based approaches are the most effective,” said Jonathan Grant, director of PwC’s climate and sustainability practice.

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