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Expanding International Carbon Pricing: The Role of Carbon Markets and CBAM

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The S&P Global Carbon Markets Conference held in Paris shed light on the significance of mandatory carbon markets and the European Union’s carbon border adjustment mechanism (CBAM) in driving the expansion of international carbon pricing. Representatives from major players like Shell and Morgan Stanley emphasized that regulated carbon markets are the most effective way to establish a global price for carbon.

The Rise of Regulated Carbon Markets

Nick Osborne, general manager of carbon and environmental products trading at Shell, highlighted the growing importance of regulated carbon markets worldwide. He emphasized the predictability and clear set of rules provided by such markets, which continue to expand in scope. Osborne expressed Shell’s support for a global carbon price, considering the pivotal role played by these markets in its realization.

Carbon Border Adjustment Mechanism: A Catalyst for Global Convergence

Osborne believed that the convergence toward a global carbon price would be facilitated by the introduction of various compliance carbon schemes globally, alongside the implementation of CBAM. CBAM is slated for a phased rollout between 2026 and 2034, eventually applying the EU’s carbon emissions price to imports of carbon-intensive products across sectors like steel, cement, and chemicals. It is anticipated that CBAM could serve as a stepping stone towards harmonizing regulated carbon markets worldwide.

EU Emissions Trading System’s Influence

The current development of national carbon schemes in China and Brazil was attributed to the virtuous impact of the EU Emissions Trading System, established back in 2005. Osborne emphasized that these initiatives signify the positive ripple effects triggered by the EU’s pioneering efforts in the realm of carbon pricing.

Savvy VCM Corporate Buyers

Teresa Hartmann, chief ratings officer at BeZero Carbon, a global ratings agency for the voluntary carbon market (VCM), expressed confidence among investors and project developers. Despite facing challenges like declining prices and transaction volumes, the VCM continues to attract interest and support.

The conference served as a platform for industry leaders to underscore the pivotal role of mandatory regulated carbon markets and the CBAM in promoting international carbon pricing. These mechanisms are expected to pave the way for the establishment of a global carbon price, encouraging the growth of carbon trading schemes worldwide.

OPIS Voluntary REDD+ Credits Reach Record High in Q4 2022

The daily mean assessments of OPIS Voluntary REDD+ Credits reached a record high in the fourth quarter of 2022. On October 10 last year, the average price of OPIS Voluntary REDD+ V22 credits peaked at $16.983/mt. However, as of Monday, the average price stood at $12.627/mt.

Growing Interest in Climate Projects

According to Hartmann, there is a noticeable increase in the number of people investing in climate projects. The urgency to address climate change has prompted individuals to support such initiatives. He mentions that these projects provide an opportunity to evaluate carbon offset projects as they are being developed rather than waiting for them to enter the market.

Corporate Clients Becoming More Educated

Jean-Baptiste Brom, head of origination for environmental products at Morgan Stanley, acknowledges a decline in VCM transactions due to media reports and calls for increased scrutiny. Nevertheless, Brom highlights that corporate clients have become more knowledgeable about carbon credits and offsets in recent years. They have shifted from asking about the basics of carbon offsets to inquiring about procurement methods and industry best practices.

Voluntary Carbon Market Challenges

Brom observes that the voluntary side of the carbon market lacks a consistent framework and structure. Despite its popularity, companies in hard-to-abate sectors are focusing on decarbonizing their own physical activities rather than relying solely on voluntary carbon credits. Their long-term climate strategies involve preparing for 2030 and 2040 targets by reducing emissions from their core operations.

S&P Global Carbon Markets Conference

The S&P Global Carbon Markets Conference is scheduled to take place from November 6-8 in Paris. This event will bring together key industry players to discuss important developments and exchange ideas on how to drive further action against climate change.

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