Emissions : Trending Facts & Insights

Overview

This is a conversation about the carbon emissions market, rather than, as it is sometimes classified, the carbon trade instrument. The aim of this market is to reduce the emissions of greenhouse gases (GHGs) and avoid adverse consequences of climate change. The market accomplishes this by making polluters pay for their emissions, which incentivizes them to adopt cleaner practices. This system is applicable to the following suitable options: cap-and-trade schemes and carbon master markets. Both systems operate primarily on the principle of trading emission permits or credits, which more accurately aligns with classical economics.

The emissions market has undergone phenomenal expansion over the last decade due to increased participation. It is expected that the total monetary value of carbon allowances issued and traded in 2023 will surpass $850 billion, largely due to increasing the stringency of compliance systems and voluntary sustainability missions undertaken by companies. The EU system has been and continues to be the world’s biggest in terms of volumes traded; the EU emissions trading system (EU ETS) consumes more than 90 percent of the existing carbon markets globally. There are Chinese national carbon markets, the North American Western Climate Initiative (WCI), and other new mechanisms coming up in Latin America, Asia, and other regions across Africa.

Industry Trends

Expansion of Carbon Markets: More and more carbon markets are developing throughout the world, especially in the growing economies.
Growth in the Level of Carbon Prices: Different countries are also enhancing the level of carbon price in order to accelerate the decarbonization process.
Technology Adoption: New designing, modifying, and applying monitoring, reporting, and verification (MRV) tools are boosting transparency and efficiency.
Corporate Commitments: This is where large firms are taking the initiative to act on science-based targets and reduce their emissions substantively.
Integration of Natural Solutions: Restoration and afforestation of forests or wetlands for wood and soil carbon, inclusive of carbon sequestration projects, is on an increasing trend.

Facts & Insights

The carbon benchmark for the EU ETS crossed €100 in 2023, which was a rising cost of emissions.
China’s carbon market, which began in 2021, is now 4 billion tonnes of CO2 dioxide annually, the biggest in terms of covered emissions.
There has been significant growth in the carbon markets, primarily due to the corporate sector's aspirations towards net zero emissions. The VCM achieved a valuation of $2 billion in 2022.
Both carbon capture and storage (CCS) and direct air capture (DAC) are increasingly being considered as solutions for reducing emissions, and their use is on the rise.

Market Segment

Compliance Markets: These markets are controlled by the government and involve emissions reductions that have to be achieved and allowances that can be traded.
Voluntary Carbon Markets: Companies and even private citizens pay for carbon credits to neutralize their emissions.
Technology Strategies: It comprises CCS, DAC, and other strategies of capturing and reducing emissions in a more efficient way.
Nature-Based Interventions: The aim is to use the capabilities of natural habitats in storing carbon dioxide.

Industry Leader

1. Shell: Engaged in market-based activities externally and within the company by means of investing in carbon capture and storage (CCS).
2. BP: Aspirationally reaching carbon neutrality, BP plans to achieve net-zero carbon emissions by 2050 through, among others, carbon trading and renewable energy investment.
3. The Verra Approval: It is one of the most prominent carbon project approval bodies.
4. Gold Standard: Also known for their quality certification of voluntary carbon credits.
5. Exxon Mobil: Putting money into new CCS equipment and green practices.