Investors call for EU's carbon price to treble

8th July 2021


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IEMA

A coalition of investors representing over $6.6trn (£4.8trn) in assets have called for the EU's carbon price to treble by the end of this decade.

In a new report, the UN-convened Net-Zero Asset Owner Alliance recommends that today's global carbon-pricing landscape be transformed in a matter of years to pave the way for 1.5ºC-aligned emissions regulation.

The group call for a carbon 'price corridor', where the price floor and ceiling rise over time, with a central median estimate of $147 per tonne required by 2030, up from the current €50 per tonne.

This will provide investors with greater certainty of future prices for efficient capital allocation, and reliable incentives for stakeholders to adopt or develop zero-emission technology, according to the report.

At present, around 80% of global carbon emissions are not covered by carbon-pricing mechanisms like emission-trading schemes or taxes.

The paper also proposes principles that will see all countries and regions set clear, legally binding net-zero targets, supported by regulated carbon-pricing measures, detailed implementation plans, and interim emissions reduction milestones.

Günther Thallinger, management board member at Allianz SE and chair of the Net-Zero Asset Owner Alliance said: “The principles we lay out in the discussion paper seek to accelerate policy and regulatory improvements towards a just transition.

“Non-regressive and revenue-neutral carbon-pricing instruments – harmonised across borders – will not only unleash massive investment in renewable power systems globally, but boost sectors from construction to transport, which are in urgent need of transition.

“While we recognise that carbon pricing is not a universal solution, governments that apply these principles will significantly increase their ability to deliver access to clean, affordable and reliable energy for all citizens.”

The carbon-pricing mechanisms proposed are a hybrid scheme between emissions trading or cap-and-trade schemes, and carbon taxes or levies.

A minimum market price – the floor – could provide certainty to investors and a guardrail against price crashes, while a maximum price – the ceiling – would prevent rapid increases in prices, and a backlash that could undermine political support for carbon-pricing more broadly.

The report also calls for a lower carbon budget – the cumulative amount of emissions permitted over a period of time – than currently exists, to meet the requirements of a 1.5ºC world.

Furthermore, it strongly encourages governments to accelerate R&D funding into zero-carbon and carbon-removal technologies, in addition to policies that drive the development and deployment these solutions at industry scale.

Charles Emond, CEO of Caisse de dépôt et placement du Québec (CDPQ), commented: “A carbon price corridor giving a clear economic signal, as well as more pre-visibility, will provide the global environment necessary for companies to make sound investments decisions, and for investors to support them in the decarbonisation of the real economy.”

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