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COVID-19 expected to impact carbon markets while businesses step up on net zero - The latest trends and developments in 2020

The 2020 survey of carbon markets participants, produced by PwC UK’s Sustainability and Climate Change team for the International Emissions Trading Association (IETA), has found:

Key findings from this year’s survey:

  1. Expected prices have decreased for every Emissions Trading System (ETS) included in the survey in comparison to 2019, and 60% of respondents expect that they will be negatively affected by COVID-19 for one to two years. An overwhelming 92% of respondents think that prices will recover within two years.
  2. Two thirds of survey participants have a long-term emissions reduction goal or will have one by the end of this year, 71% of which are absolute targets. Pressure from stakeholders - both consumers and investors - was identified as the main driver of voluntary corporate action.
  3. 57% of carbon market participants and 67% of airlines agree that COVID-19 will have a significant negative impact on the pilot phase of CORSIA.
  4. Businesses support Natural Climate Solutions (NCS): most respondents believe that NCS should play a role in delivering the EU’s climate strategy. The main barriers to investment in NCS at scale are perceived environmental integrity concerns and lack of recognition of the associated carbon credits in compliance systems.
  5. Most respondents (65%) think that climate will be an important voting issue for some voters in the 2020 US presidential election.

The report covers recent progress and expectations for compliance and voluntary markets across several geographies, as well as Natural Climate Solutions (NCS) and aviation.

“This survey reveals bearish sentiment around carbon prices across all emission trading regimes on account of COVID-19, with an upturn not expected for perhaps one to two years. Similarly, the expansion of carbon pricing regimes to other countries is likely to slow. There are, however, more positive signals around the greater adoption of absolute carbon targets by corporations and a resurgence in customer interest to mitigate the environmental impacts of the products and services they choose. This should underpin pricing for voluntary carbon credits over the medium term.”

Ian Milborrow PwC Partner

Average carbon price expectations for the EU ETS over successive surveys

Average carbon price expectations for the EU ETS over successive surveys

What do you expect the average carbon price to be for each of the following ETSs in the periods 2020 and 2021-30?

What do you expect the average carbon price to be for each of the following ETSs in the periods 2020 and 2021-30?

A survey conducted by PwC of over 130 IETA members from across the globe has revealed that carbon market participants expect the COVID-19 pandemic to weigh on emissions allowance prices for the next two years, with price expectations for the coming decade also dropping. Respondents expect carbon prices to be significantly lower than what they think is needed to limit global warming to below 2°C.

The UN Aviation body’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is also expected to suffer setbacks. Both market participants and airlines think that it will be significantly negatively affected by COVID-19 for the next three years, but beyond this the outlook is more optimistic. In addition, confidence in China’s national ETS launching in the next two years has reduced this year, with only one-third of respondents expecting trading to start by 2021 compared to two-thirds last year.

Nevertheless, voluntary corporate action on climate is increasing. Two-thirds of survey participants said that their organisation has a long-term emissions reduction target, and the majority of these were absolute ‘net zero’ targets. Most respondents also stated that they plan to take advantage of carbon credits to achieve these goals, alongside renewable energy investments, energy efficiency and new business models. Further, market participants are confident that the market can accommodate the observed increase in pledges.

“Prices will be closely correlated to the shape of COVID recovery in the short term, but in the longer term there will be broader forces around to what degree certain sources of emissions will return, and that we might see systematic behavioural changes as a result of post-pandemic economic structures being reshaped.”

IETA member

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

Oliver Willmott

Oliver Willmott

Senior Manager, Sustainability & Climate Change, PwC United Kingdom

Tel: +44 (0)7753 458797

Matt Gilbert

Matt Gilbert

Senior Associate, Sustainability & Climate Change, PwC United Kingdom

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