EU carbon market's importance seen rising in 2020: Refinitiv survey

The perceived importance of the EU Emissions Trading System has increased in 2020, according to a survey of global carbon market participants by financial analysis company Refinitiv.

The results indicate a recent change in sentiment which reflects the now strengthened EU ETS, and higher carbon prices seen in 2019 compared with previous years, as well as the outlook for further market reforms as Europe lays the foundations of a green economy.

"European survey respondents see the EU ETS as the most important driver of emissions abatement in the years to come," Refinitiv said in a statement Wednesday.

"Some 43% think Europe's carbon market will have a major impact on emissions – that is more than the share who think 'other EU-wide climate policies' and 'national climate policies' will drive emission reduction, especially compared to 2019," it said.

Among the 53 EU carbon market participants who responded before the government lockdowns in mid-March due to the coronavirus, 60% said they expected EU carbon prices to remain around or above Eur25/mt in 2020, Refinitiv said.

However, of the seven participants who responded after March 15, all expected a carbon price of below Eur25/mt in 2020, it said.

EU Allowance prices traded in a range of roughly Eur22/mt to Eur26/mt between January 1 and March 15, but fell sharply to below Eur15/mt in late March as most European governments curbed movement of people.

Mixed views on carbon market reforms

Survey participants also gave mixed views on the outlook for further carbon market reforms.

A "solid majority" expect EU lawmakers to increase the rate by which the EU ETS annual carbon cap declines in 2021-2030, beyond the current 2.2% per year, effectively tightening the supply of allowances in line with a stronger EU 2030 emissions target, Refinitiv said.

"Some 37% think this will be decided by 2023, another 28% by 2025," it said.

Moreover, a majority of participants said they expect an overhaul of the rules on the Market Stability Reserve. The MSR responds to the aggregate surplus of allowances in the market by reducing the volume governments can sell at auction in future years, tightening the market balance over time, and maintaining a stronger carbon price signal.

Currently the MSR withdrawal rate is set at 24% per year, and this will drop back to 12%/year after 2023 by default, unless the EC decides to extend the higher rate.

"Some 35% expect this decision by 2023, while 20% think the change to a higher rate will be re-imposed in 2024 or 2025. Another 20% think the intake rate will switch to the default rate of 12% after 2023 and remain at a low level," Refinitiv said.

And on measures to expand the scope of the EU ETS, relatively few expect land transport emissions to be included in the system before 2030.

Nearly a third of respondents think land transport will not be included. A larger share of participants expect maritime transport emissions to be covered, either by 2025 or by 2030, it said.