A gloomy picture for the US$125bn global carbon markets has emerged from the annual greenhouse gas (GHG) market sentiment survey conducted for the International Emissions Trading Association (IETA) by PricewaterhouseCoopers, showing growing market frustration with the slow pace of a new climate deal, and low carbon investment.
Focusing on market confidence post 2012 for the first time, nearly three quarters of those who responded to the survey say regulatory uncertainty is suppressing low-carbon investment. More than two thirds believe that the carbon price will need to be more than EUR 40 to limit warming to 2oC, but only one in ten respondents see any real prospect of this emerging in the medium-term.
Two out of three respondents believe the current uncertainty will have a significant negative impact on long-term low-carbon investment and expectations of future prices are lower than this time last year.
While views on future trading volumes in carbon markets have remained broadly positive, confidence in prices in both the EU Emissions Trading Scheme (EUETS) and the CDM has fallen compared to last year’s survey. The weighted average price prediction for EU Allowances in Phase III of the EU ETS is EUR25.97, down from EUR30.11 last year.
Henry Derwent, President of IETA, commented: ‘The carbon market is still the most effective policy for tackling climate change, but regulatory uncertainty is undermining confidence in the market and consequently low carbon investment.
Respondents pointed to increasing uncertainty around the role that the CDM will play in the international offset market, with over half expecting that CERs will not be the dominant international offset by 2015. Voluntary offsets are not expected to fill the gap, with respondents pointing to the possible emergence of linked regional offset credits that can be interchanged across schemes.
Of over 750 respondents more than a quarter say that in the absence of long-term certainty on an ambitious climate deal, they will only persevere to 2015. Amongst other key results:
72% said COP15 was bad for carbon market confidence and prospects
No major agreement is expected from COP 16 in Cancun, with 60% believing a global climate deal will not be made until 2011
60% of respondents expect trading volumes in the voluntary market to increase
Opinions are divided on whether new regional trading schemes will emerge, with 43% expecting a Japanese ETS to emerge by 2012, and 25% predicting a South Korean ETS by the same time. 82% do not expect a US trading scheme to come online by 2012.
Despite their pessimism, major players remain convinced that carbon markets, alongside regulation and standards are the best way to drive additional investment in low carbon technology. Carbon taxes ranked at the bottom of the table to drive investment and innovation.
Richard Gledhill, Head of Carbon Markets Services at PricewaterhouseCoopers, said: ’With carbon price expectations dented by the recession and by lack of progress in the international negotiations, it is difficult to see the carbon market driving the scale of investment required, without tougher targets at the national level. ‘London looks set to remain at the centre of the carbon markets for the next few years. But we will need to see real progress on the policy front if its growth is to be sustained’.
