Global carbon price set to soar

Study predicts new carbon markets in US, Japan and Australia will see global price of carbon increase 53 per cent by 2020
James Murray, BusinessGreen, 15 Oct 2008
Chimney

New research from analyst firm New Carbon Finance suggests that the average price of carbon on the world's carbon markets will soar to $49 (£28) a tonne over the next 12 years.

The EU is expected to lead the gains, with the price of credits in its emissions trading scheme more than doubling from an expected average of $39 during the current trading period up to 2012 to $97 by 2020.

Similarly, large-scale price hikes are also predicted for planned carbon markets in North America, Australia and Japan.

The study said that prices in North America would more than double from $12 in 2012 to $30 in 2020, prices in Australia would increase five-fold over the same period from $16 to $82, and the price of Japanese credits will treble from $22 to $66.

Credits on the voluntary carbon offset market and UN-backed CDM and JI markets are expected to experience similar levels of inflation. The price of credits in the voluntary market is expected to climb from an average of $6 a tonne now to $20 in 2020, while credits in the CDM and JI markets will see prices increase from $27 to $68 over the same period.

Douglas Higgins, analyst at New Carbon Finance, said that the price increases would be driven primarily by a tightening in the emission caps imposed upon those companies operating in emissions trading schemes.

However, he added that demand for credits would also intensify as firms found it steadily more expensive to cut their own carbon emissions.

"If the markets work properly firms should cut their own emissions up to the point where it is cheaper to do that than buy a permit," he explained. "That means that once the simple emission abatement investments such as energy efficiency have been made they will have to invest in more expensive measures or turn to permits, which should drive up demand and prices."

However, he warned that the predictions were based largely on the projected regulatory framework and as such any changes from current proposals, such as those being discussed by EU member states, would have a major impact on prices.

"The EU price is calculated on the assumption it will aim for a 20 per cent reduction in emissions targets," he said. "If, as the EU has said, that increases to a 30 per cent reduction in the event of an international climate change deal, the price will rise."