Carbon markets are heating up

Mar 09, 2023 View in browser   By Jordan Wolman THE BIG PICTURE Carbon dioxide is getting more valuable. Last year was the costliest yet to buy emissions permits in carbon markets, a new report finds. Increased carbon prices in Europe and North America drove a 13 percent rise in the value of CO2 in 2022, according to a new report from Refinitiv, a British-based provider of financial markets data. Global carbon market transactions rose to $9.2 trillion, up from about $8.2 trillion in 2021. That’s despite a 20 percent decline in the number of transactions compared with 2021. Volatile energy prices were a boon to carbon prices, but steady political support also provided a boost, the report finds. European lawmakers agreed in December to trim emissions budgets through 2030, and California regulators settled on a tighter 2030 cap in November. The biggest contributor to high prices was the war in Ukraine, which boosted European markets by 10 percent despite a 24 percent drop in the number of allowances traded. Reduced economic activity — and subsequently lower demand for permits — was balanced by increased reliance on emissions-heavy coal. Trading in North American markets grew 21 percent despite seeing 7 percent fewer transactions. The two North American markets diverged last year. California regulators finalized a plan to meet the state’s ambitious emission reduction targets, meaning caps in the program will be tighter — and prices higher. By contrast, the regional market in the Northeast continues to face obstacles as politicians in Pennsylvania and Virginia battle over their participation. Refinitiv projects continued rising prices in both markets, though, as California and the Northeast cooperative set tighter emissions thresholds. Meanwhile, a new North American market launched this week with Washington's inaugural auction of carbon allowances. The state saw high demand, with allowances selling for more than twice the minimum price, as Anne C. Mulkern reports for POLITICO's E&E News. Regulators could decide as early as this summer to link the market with California and Quebec's. China marked the first full year of its carbon market in 2022, but its program is struggling to get off the ground after pandemic-related setbacks and regulatory delays. The amount of traded emissions allowances declined 70 percent from 2021 – even though trading only began in the second half of that year. The voluntary carbon market presented similar trends as the mandatory ones. The volume of traded emissions allowances declined from prior years, but the value of the traded allowances grew 44 percent in 2022 from 2021, according to a report from Xpansiv, an environmental commodities tracker and trading platform. The number of firms participating in the voluntary market also rose 32 percent from 2021.   DOWNLOAD THE POLITICO MOBILE APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. The sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don’t miss out on the app you can rely on for the news you need, reimagined. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID.     YOU TELL US GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. We deliver data-driven storytelling, compelling interviews with industry and political leaders, and news Tuesday through Friday to keep you in the loop on sustainability. Team Sustainability is editor Greg Mott, deputy editor Debra Kahn and reporters Jordan Wolman and Allison Prang. Reach us all at gmott@politico.com, dkahn@politico.com, jwolman@politico.com and aprang@politico.com. Want more? Don’t we all. Sign up for the Long Game. Four days a week and still free! WHAT WE'RE CLICKING — The comeback for global auto sales continues, just without pre-pandemic levels of vehicles running on gas and diesel, Bloomberg reports. — The EU announced a new plan to match U.S. green subsidies, the Financial Times reports. — The number one concern around hydrogen for industry and governments worldwide: Make it profitable, Reuters reports.   LISTEN TO POLITICO'S ENERGY PODCAST: Check out our daily five-minute brief on the latest energy and environmental politics and policy news. Don't miss out on the must-know stories, candid insights, and analysis from POLITICO's energy team. Listen today.       Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Jordan Wolman @jordanwolman Allison Prang @AllisonPrang   Follow us

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