Global carbon markets in COVID: Working to deliver a net-zero future, Dirk Forrister– President and CEO, IETA
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The document discusses the impact of COVID-19 on global carbon markets, highlighting significant drops in prices but a strong outlook for future compliance markets. It notes the ongoing commitment from the private sector towards net-zero targets, with over 1,100 companies involved and a cumulative market volume of 1.3 billion tons. The potential economic benefits of implementing Article 6 for cost reduction and increased ambition in carbon emissions reduction are also examined.
Global carbon markets in COVID: Working to deliver a net-zero future, Dirk Forrister– President and CEO, IETA
- 1. Global carbon markets in COVID Working to deliver a net-zero future Strategic Dialogue of the Carbon Markets Platform Dirk Forrister– President and CEO, IETA 4 November 2020 1
- 2. * Carbon allowances are dominant type of trade * Carbon offsets are used in both voluntary + compliance markets * Given limits on use, offsets trade at a discount to allowances * Voluntary market prices vary widely, reflecting ESG co-benefits * TCFD* is strong driver of new demand * Taskforce on Climate-related Financial Disclosure 2 Scene setter: today’s carbon compliance markets Source: International Carbon Action Partnership 2020
- 3. EU ETS 2020 market during COVID 19 Source: ICE Futures (Oct 2020) Market observations • COVID shut-downs, economic slow- down and energy demand decline • EU ETS dropped 36% in March • Environmental targets remain in place, with robust future outlook • Prices gradually returned to pre- COVID range -36%
- 4. EU ETS 2020 market during COVID 19 (II) Source: ICE Futures (Oct 2020) Market observations • COVID shut-downs, economic slow- down and energy demand decline • EU ETS dropped 36% in March • Environmental targets remain in place, with robust future outlook • Prices gradually returned to pre- COVID range • Market now anticipating 2021 start of Phase 4 Avg 2019 price = EUR 24.91 Avg 2020 price = EUR 24.02
- 5. 5 US carbon compliance markets during COVID-19 California carbon market 2020 Allowances s Offsets s US federal aviation market • US volunteered for ICAO CORSIA program pilot phase • Pilot baseline changed due to COVID (2019 only) • Little demand in pilot phase, except voluntary action • Approved US offset standards / programs (Mar 2020) • American Carbon Register • Verified Carbon Standard • Climate Action Reserve Source: Clear Blue Markets (June 2020) California market observations • With COVID shut-downs, California demand slipped • Impacts for both allowance and offset markets • Allowance auctions unsold • Prices on exchanges declined below floor price • Offset prices also dropped • All market prices recovered to near floor price
- 6. 6 COVID 19 impacts on WCI auctions Source: WCI / Quebec Ministry of Environment and the Fight Against Climate Change (2020)
- 7. Voluntary carbon market trends 7 * Strong appetite from private sector to act on climate, despite Covid-19 impacts and Article 6 uncertainties * 1,100 + companies committed to Net Zero targets globally * Cumulative voluntary carbon market volume tops 1.3 billion tons, with value exceeding $5.5 billion * Growing list of initiatives looking into ways to mobilize more climate finance Source: Ecosystem Marketplace (2020) Transacted Voluntary Carbon Offset Volume, Value, and Weighted Average Price by Project Category, 2019 Annual Voluntary Carbon Offset Issuances and Retirements, 2007–2019
- 8. Vision: carbon offsets market accelerate transition to net-zero Source: International Carbon Reduction and Offset Alliance (2020) - All rights reserved 8 tCO2e Time Zero emissions BAU emissions Residual emissions: IPCC- aligned decarbonization pathway and procurement of green electricity Carbon credits from reduced and avoided emissions Carbon credits from biological and technological sequestration
- 9. DRAFT PRESENTATION—DO NOT QUOTE, SUBJECT TO CHANGE 9 What is the potential value of Article 6? If Article 6 were implemented perfectly … * How much could costs be reduced? * If those cost savings were applied to enhance ambition, how much more ambition might there be? 2030 Article 6 Potential Cost reduction (billions 2015 USD/year), Ambition increase (GtCO2/y) Reduction in Cost Increased Ambition Fossil Fuels Only ~$165 billion/yr ~4.3 GtCO2/yr Land Use incremental change ~$210 billion/yr ~4.5 GtCO2/yr Combined ~$375 billion/yr ~9 GtCO2/yr Source: Jae Edmonds and Sha Yu, University of Maryland, Draft analysis - Comments welcome (Oct 2020)
- 10. NDC Shadow Prices: Nature-based Solutions Significantly reduce shadow prices in the near term 10 2030 2050 Independently Implemented NDCs Fossil Only $0 to $243/tonCO2 $0 to $290/tonCO2 Cooperatively Implemented NDCs Fossil Only $38/tonCO2 $54/tonCO2 Cooperatively Implemented NDCs Fossil & Nature- Based $22/ tonCO2 $56/ tonCO2 Source: Jae Edmonds and Sha Yu, University of Maryland, Draft Analysis/Comments Welcome - Presentation to 20th IEA-IETA-EPRI GHG Trading Workshop (Oct 2020)
- 11. DRAFT PRESENTATION—DO NOT QUOTE, SUBJECT TO CHANGE 11 Potential changes in CO2 Emissions Sellers Buyers = Buyers and Sellers under Article 6 + Source: Jae Edmonds and Sha Yu, University of Maryland, Draft Analysis/Comments Welcome - Presentation to 20th IEA-IETA-EPRI GHG Trading Workshop (Oct 2020)
- 12. * Paris temperature goals require deep decarbonization + enhanced cooperation * Market linkages are essential to deliver the “net” of sources and sinks * Corporates will respond to this potential, but good Art 6 rules are still essential * IETA’s economic modeling, spurred on at the Halifax meeting of the CMP, has demonstrated the potential for economics and ambition * Economic modeling continues in 2021 – pending funding commitments * Economic potential of a carbon buyers club * Implications of net zero targets * SDG value in market cooperation 12 Why market cooperation matters
- 13. Thank you! For more information: [email protected] www.ieta.org 13