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Governments need to send stronger carbon price signal: South Pole

Highlights

Carbon asset developer says $100/mt price needed

Carbon offsets mostly trade well under $10/mt

Private sector can fill gap left by government inaction

London — Governments need to send a much stronger price signal for carbon emissions reductions if the world is to meet goals to limit global warming, sustainability consulting company South Pole said in a report Jan. 20.

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Weak carbon price signals risk leading investors to avoid backing the low-carbon technologies at the speed and scale needed to reach net-zero emissions by 2050, the Zurich-headquartered company said.

"If the world is to achieve net-zero carbon emissions by 2050, then we need to cut 30 billion mt of CO2 from our global carbon footprint by no later than 2030," South Pole said.

"Mission impossible? Not quite. But the private sector is struggling to read and react properly to the poor price signal on greenhouse gas emissions being sent by governments. As a result, progress on cutting emissions continues to be slow," it said.

Regional compliance markets for carbon, such as the EU Emissions Trading System, have delivered a carbon price signal of over Eur30/mt ($35.80/mt), while voluntary carbon offset prices are far lower, largely because the total supply of voluntary credits is not capped.

"The average carbon price around the world, where there's a price at all, is less than one tenth of the level of where it needs to be: near $100/mt. Even in the European Union, it's less than half that," said South Pole.

"This weak price signal is diluting the incentive of emitting companies to cut their production of GHGs at the pace required to avert disastrous climate damage," the company warned.

Most voluntary climate action is being taken by listed companies that are setting net-zero emissions targets and boosting corporate responsibility policies, the company said.

However, these efforts are still not enough to reach the 1.5 degrees Celsius climate target of the Paris Agreement, it said.

Private sector needs to step up

The private sector can play a critical role in supporting the push to reach net-zero emissions through voluntary action, South Pole said.

"In the absence of governments being willing or politically able to put in place ambitious climate regulation that puts a real and sufficiently high price on carbon, makes emitting GHG [greenhouse gases] costly, and catalyzes change, the private sector needs to take the lead," the company said.

"The voluntary carbon market is an important tool in catalyzing a global transformation to a low carbon economy."

"It is in itself efficient and cost-effective, but for it to make the necessary impact, it needs to be exponentially scaled up as well," it said.

"Today's voluntary carbon market is largely driven by the perception that a company's carbon footprint is a liability, and we need to make sure that companies that are stepping up to address that liability have a clear pathway to doing so," said David Antonioli, CEO of carbon offsets company Verra, cited in the South Pole statement.

"In addition, being proactive on climate change provides companies with a unique opportunity to strengthen their brand, including by combating global inequality and climate injustice," said Antonioli.

S&P Global Platts assessed CORSIA-eligible carbon (CEC) offset credits at $1/mt CO2 equivalent Jan. 19. The assessment relates to carbon credits that are compliant with the United Nations Carbon Offsetting and Reduction Scheme for International Aviation.

The CORSIA system requires airlines to offset any CO2 emissions growth over and above a 2019 baseline. Demand is lower than originally envisaged because the coronavirus pandemic hit international air travel hard in 2020, reducing the sector's CO2 emissions.

Nevertheless, a recovery from the virus could pave the way for a strong rebound in global air travel over the longer term, boosting the volume of credits that airline operators would need to buy to be compliant with the scheme, whose initial two-year voluntary pilot phase started in January.

Outside of the CORSIA scheme, carbon offsets have traded at higher prices, particularly from emissions reduction projects which carry additional benefits such as boosting local employment or biodiversity, according to project developers.