An overwhelming majority of IETA members expect carbon markets to have a role in an international climate change deal, expected to be agreed in Paris next year, according to IETA’s ninth annual Market Sentiment Survey.
Over 80% of respondents to this year’s survey, conducted by PwC, expect the Paris 2015 climate agreement to pave the way for more carbon markets globally, with the potential to link them in the future. Around two-thirds of respondents (63%) believe that the Clean Development Mechanism (CDM) will continue on in some form, with most of those replying think it is likely to be reformed. However, only a handful (4%) anticipate all major economies to face legally-binding reduction commitments from the deal.
“The role for carbon markets – and linked markets – in fighting climate change is being increasingly recognised by policymakers around the world, from China to Europe to California,” says IETA president and CEO Dirk Forrister.
“Despite a tumultuous few years in Europe, backwards steps in Australia and challenges with the CDM, the benefits of using markets to cut emissions are still driving more nations to explore emissions trading. We hope that policymakers hear our voices and ensure that the Paris agreement facilitates the spread of carbon markets, and linkages between them.”
Key for ensuring future success of the international climate negotiations is the functioning of the Green Climate Fund, and 70% of respondents expect the fund to be distributing cash by 2020 – with one-third expecting finance to flow in the next few years. Just a week after the survey closed, the GCF announced it is ready for capitalisation – a step in the right direction.
More than half of those who replied believe that directly supporting private sector activities would be effective, and a similar percentage think that the GCF would also be effective if it acted as a pool for private sector investment in mitigation and adaptation activities.
In Europe, while price expectations for the EU Emissions Trading System (ETS) continued to fall in this year’s survey, the rate of decline is slowing, suggesting that some participants see the downwards trend stabilising. Around two-thirds of respondents predict an average EU allowance price of €5-10 in Phase III (2013-20) of the EU ETS – at the time of the survey, the front December contract was priced around €5.
The backloading of EUAs within Phase III was welcomed by respondents, but more than 90% want further reforms to the pioneering emissions market. Although the European Commission has proposed a Market Stability Reserve, only 27% believe it will be able to stimulate sufficient low-carbon investment, while 47% believe an ambitious 2030 emissions reduction target is the most effective option.
“Last year’s survey found that 90% of respondents favoured reforms to the EU ETS to reduce the allowance surplus – and a similar number this year still think further reforms are needed,” says Jon Williams, a partner in PwC UK’s Sustainability and Climate Change team, which conducted the survey for IETA.
“All eyes will be on the 2030 debate to see if the bloc can agree a reduction target deep enough to drive the low-carbon investment that is urgently needed.”