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Global carbon markets grow 34% in 2019, led by Europe: Refinitiv

Highlights

Global market value soars to Eur194 billion

Tighter supply drives EU carbon prices higher

Chinese market set to drive further growth in 2020

London — The total value of the global carbon markets grew by 34% in 2019 to Eur194 billion ($214.5 billion), according to a report by financial analysis company Refinitiv.

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Carbon markets around the world grew for a third consecutive year in 2019, and the value has grown almost fivefold since 2017, the calculation shows.

"Record strong prices in the European Emissions Trading System (EU ETS), which makes up almost 80% of the global traded volume, was the main reason behind the growth in value," Refinitiv said in the report released late Wednesday.

The average carbon price in the EU ETS rose to just under Eur25.00/mt in 2019, up Eur9.00/mt compared with 2018, it said.

The main driver for the price increase was the Market Stability Reserve which came into effect in January 2019, withholding a significant volume of allowances and tightening the supply side, it said.

"The Green Deal proposals of the new European Commission, and talk of reopening the 2030 emissions reduction target, also lent support. Higher carbon prices made gas power plants more competitive against coal in Europe, and helped reduce emissions," Refinitiv said.

EU CLIMATE POLICY TO RAMP UP IN 2020

European climate and energy policy discussions are set to intensify in 2020 as the new European Commission starts presenting draft legislation to implement an emissions reduction target for 2050 as well as adjusting the 2030 target.

In addition, market participants will be watching the German coal phase-out and the negotiations for a future relationship between the EU and UK after Brexit, Refinitiv said.

Meanwhile, the two North American carbon markets – the Western Climate Initiative and the Regional Greenhouse Gas Initiative – both saw an increase in traded volume and value, with their combined value in 2019 jumping 74% to Eur22 billion, it said.

The global valuation also includes carbon markets in South Korea and New Zealand, and an emerging market in Mexico.

The company's analysis of global carbon markets includes legally binding carbon markets, but excludes voluntary carbon offsetting activities. It also includes the value of traded volume in secondary markets, where allowances change hands more than once during a year.

CHINESE CARBON MARKET STIRS

Moreover, the growth in value of the global carbon markets looks set to continue in 2020, with the start of China's national ETS, initially covering the power generation sector, but with ambition to expand to other sectors.

"The China national ETS has finally awakened after a long hibernation," Refinitiv said in the report.

China has operated regional pilot emissions trading systems since 2013, and these nine markets saw about 93 million allowances change hands in 2019, up from 78 million in 2018. The value of those pilot systems gained 40% in 2019 to reach Eur272 million, it said.

The experience with regional markets has informed China's push to launch a nationwide carbon market in 2020 – expected to become the world's largest. It will cover an estimated total allocation of 4 billion-4.4 billion mt of CO2 equivalent, more than twice the size of Europe's 31-nation EU ETS.

Intense preparations have been taking place in 2019 to get the market's rules in place and market participants ready so that trading can start in 2020.

Chinese authorities are expected to release a detailed regulatory framework in the first quarter and publish the final legislation early this year, allowing trading to start in the third quarter, it said.

The national Chinese ETS covers all power generation in the country, while the non-power elements of the regional pilot programs are expected to continue in parallel.

Under the nationwide system for power, allowances will be handed out for free, and initial allocation is expected to be generous, based on fuel-specific benchmarks. However, the Chinese government is expected to tighten the supply gradually by lowering the benchmarks over time, Refinitiv said.