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Bullish sentiment expected over the next decade for carbon markets globally - the latest trends and developments in 2022

A survey conducted by PwC UK of over 210 International Emissions Trading Association (IETA) members has revealed optimism that carbon prices around the world will increase over the short to medium-term.

The 2022 survey of carbon markets participants - the seventeenth survey produced by PwC UK’s Sustainability and Climate Change team for IETA - also found that the war in Ukraine and the resulting concerns over energy security are likely to lead Europe to adopt more ambitious climate targets.

However, respondents to the survey believe that the agreement reached at the climate talks in Glasgow last year is insufficient to achieve the global goal of net zero emissions by the middle of the century.

Key findings from this year’s survey

  1. Bullish sentiment on carbon prices globally. Expected prices for the periods up to 2025 and 2030 have increased significantly for every emissions trading system included in the survey. In the EU and the UK ETS prices are expected to reach almost €100 (£86) by 2030. This builds on the bullish sentiment expressed in the 2021 survey. 

  2. Respondents anticipate that the war in Ukraine and subsequent concerns over energy security will lead to more ambitious EU climate policy. Half of respondents expect the war in Ukraine to lead to the EU strengthening its “Fit for 55” package. Respondents consider EU policies aiming to reduce Russian gas import and accelerate deployment of renewables as key drivers behind EU carbon price increase by 2030.

  3. The agreement reached at COP26 is considered to be insufficient to achieve the long-term goals of the Paris Agreement. Despite the successful outcome of the Article 6 negotiations, 39% of respondents believe that the agreement is not sufficient, with stronger commitments required to achieve the goals of the Paris Agreement. In addition, respondents were pessimistic about progress made in translating commitments into action since COP26, with 52% stating there has not been significant progress.

  4. The EU’s proposal to establish the Carbon Border Adjustment Mechanism (CBAM) is considered effective in protecting EU industries against the risk of carbon leakage. The majority (65%) of respondents expect the introduction of the CBAM and the gradual phase out of free allocations to be “somewhat effective”. However, respondents highlighted that the risk of carbon leakage may continue to occur for export-oriented industries if a suitable regulatory solution is not found. 

  5. Participants showed cautious optimism over the role of new voluntary carbon market (VCM) governance bodies in improving the integrity of carbon credits. The majority of respondents answered yes (36%) or maybe (41%) to whether the establishment of new governance bodies will improve the integrity and long-term sustainability of the VCM. However, the quality of carbon credits was identified as the biggest challenge for the VCM over the next 12 months.

The report covers recent progress and expectations for compliance and voluntary markets across several geographies, as well as UNFCCC negotiations.

“This year’s survey reveals bullish sentiment for carbon pricing globally, as price expectations hit record highs across all emission trading schemes surveyed. Carbon pricing initiatives - which already cover over one-fifth of global GHG emissions - represent a critical lever to deliver the emissions reductions required to keep warming to below 1.5°C.

Elsewhere, the voluntary carbon market has a critical role to play in directing private finance towards climate mitigation and nature-based projects. As the survey demonstrates, improving the integrity and transparency of the market will be critical to guarantee its credibility and enable action at scale from the private sector.”

Ian Milborrow, PwC Partner

What do you expect the average carbon price to be for each of the following ETS in the periods 2022-2025 and 2026-2030?

What do you expect the average carbon price to be for each of the following ETS in the periods 2022-2025 and 2026-2030?

In this year’s survey, expected carbon prices have increased across the board, as prices have risen dramatically in the past 12 months. In several instances, prices have already surpassed the projections made for the period 2026-30 in last year’s survey. The EU ETS broke the €90t/CO2 barrier for the first time in its history in February 2022, while the UK ETS has consistently traded at over £80t/CO2 (€93.78) throughout 2022 (accurate at the time of publication in June 2022).

Positive sentiment around the future of pricing across different schemes is reflected in the survey responses, with significant increases expected across every scheme surveyed. The EU and UK ETS have the highest expected average carbon price of any ETS across both periods of 2022-25 and 2026-30, with prices expected to nearly reach €100t/CO2 (£86) during the period 2026-30 for both schemes.

Demand for carbon credits on the voluntary market saw significant growth in 2021. The total market value of the global voluntary carbon market (VCM) exceeded $1 billion for the first time, with the increase in corporate net zero pledges identified as a key driver of the increase in demand by survey respondents.

As the VCM is expected to continue to grow rapidly over the next decade, it has brought about questions over whether the VCM will be able to accommodate the increased demand. However, the majority of survey respondents (66%) believe that the VCM will be able to accommodate the growth needed to meet demand from net zero commitments and pledges to reduce emissions by 2030, an increase from 48% last year. In addition, the majority of respondents plan to use nature-based removal credits as part of their market growth strategy, with the most selected project types being Natural Climate Solutions (including forests, soil and wetlands projects) (26%) and reforestation projects (26%).

Respondents identified the growth of regulatory compliance and standardisation of the market as one of the challenges for the continued development of the VCM over the next 12 months. This comes as the Integrity Council for the Voluntary Carbon Market (ICVCM) and Voluntary Carbon Markets Integrity Initiative (VCMI) release their initial guidance on standards for high-quality carbon credits and credible net zero claims.

However, there was mixed sentiment over whether these new governance bodies will bring greater transparency and standardisation to the VCM. The majority of respondents stated “maybe” (41%) or “yes” (36%) over whether they believe the new bodies will improve the integrity of carbon credits and contribute towards the long-term sustainability of the market

2022 is set to be another critical year for carbon markets - as the EU prepares for final negotiations over its “Fit for 55” policy package, discussions are set continue on how to operationalise Article 6, and important regulatory and governance developments are expected on the voluntary market.

The report’s authors would be very happy to discuss what this could mean for your business or organisation. If you are interested, please refer to the contacts below.

Contact us

Matt Gilbert

Matt Gilbert

Manager, Sustainability & Climate Change, PwC United Kingdom

Tel: +44 (0)7483 407354

Sushmita Seelam

Sushmita Seelam

Senior Manager, PwC United Kingdom

Tel: +44 (0)7483 334932

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