Greenhouse helps Carbon Tracker launch pioneering report on need for carbon price

Carbon prices could quadruple by 2030 to €55 a tonne if the EU takes action to align the world’s biggest carbon market with the Paris Agreement, finds a new report by Carbon Tracker.

Last week Greenhouse worked with the financial think tank’s communications team to launch Carbon Clampdown, the first report to analyse this issue. It matters because European governments have asked the EU commission to draw up proposals for reducing emissions in line with the Paris target of keeping global warming well below 2 degrees Celsius.

The report reveals that recent reforms to the EU emissions trading system are likely to see carbon prices double from €13-14 today to reach €25-30 a tonne by 2021. However, further action would be needed to align with the Paris target which could see prices quadruple to €45-55 a tonne by 2030.

Communicating this vital research is essential to prepare markets for a swift energy transition. The report finds that that rising carbon prices would need to rise to levels that would make even the most efficient coal and lignite plants unprofitable, driving a major shift from coal to gas generation in Italy, Spain, Germany and the Netherlands.

Greenhouse worked with Carbon Tracker to generate extensive media coverage of the report in Reuters, Bloomberg, Platts, The Financial Times, The Daily Telegraph and a Sky News interview with Mark Lewis, the author of the report. The story was also covered internationally across Europe, India and South America.

Total coverage achieved a combined reach of 200 million, with 400K estimated coverage views.

“We were impressed with the joint communications and media team. You are world class and second to none”, said Anthony Hobley, CEO Carbon Tracker.

Why is this so important?

Mark Lewis, former Head of Carbon Research at Deutsche Bank says: “Carbon pricing won’t be sufficient on its own to achieve the Paris goal of limiting warming to well below 2˚C, but it does have a vital role to play. Carbon prices put a value on the limited amount of CO2 we can store in the atmosphere if we are to avoid catastrophic climate change. The space left for increased concentrations of greenhouse gases is the ultimate scarce resource, and it is imperative that it be priced accordingly.”

The EU Emissions Trading system is the world’s biggest carbon market, covering energy intensive industries responsible for half the EU’s emissions as well as aviation. Companies receive allowances to cover their CO2 emissions which they can buy or sell. The number of allowances is reduced over time, driving prices higher and incentivising action to cut emissions and switch to cleaner fuels.

Why hasn’t it worked in the past? 

The 2009 global financial crisis and subsequent recession saw a huge over-supply of carbon allowances build up, permanently lowering prices. In short, supply was far greater than demand, so a tonne of CO2 became very cheap.

What will make it work this time? 

The EU is introducing a mechanism to create the biggest supply squeeze the European Trading System has ever seen. From January 2019 a new Market Stability Reservewill cancel 24% of the surplus (left over supply) each year up to 2023 and 12% thereafter. Prices of carbon allowances have already tripled in the last 12 months, making them the world’s best performing energy commodity over that period. The report finds they could double again by 2021 as the supply squeeze starts to bite.

More change is needed

The Market Stability Reserve will remove the supply surplus but will still leave the EU Emissions Trading System aligned with Europe’s goal of a 40% emissions cut (against 1990 levels) by 2030. Carbon Tracker calculates that a 55% cut is needed to align with the Paris Agreement.

This would require the EU to take action to squeeze an extra 1.6 gigatonnes of allowances would have to be squeezed out of the market, forcing a much greater switch to clean energy. The EU ETS cap would need to reduce by 4% a year from 1.8 gigatonnes in 2020 to just over 0.943 gigatonnes in 2030.