Report: Carbon Pricing Likely to Expand, Aid in Net-Zero Targets

Published on: 10 August 2022
by KnowESG
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According to research from S&P Global Ratings, carbon pricing is likely to become more of a focus regarding net-zero targets, and companies in the most carbon-intensive industries that are prepared for the rising costs may give themselves a competitive advantage.

The report looks at existing carbon pricing policies across the world and various emissions trading systems, including the European Union's, which S&P Global Ratings says, is the most established. It also analyses the sectors, including energy, transportation, materials, and utilities, that are the most carbon-intensive on a direct emissions basis, and what that means for those sectors.

S&P Global Ratings says many economists believe carbon pricing policies are one of the most efficient tools to encourage greenhouse gas reductions. They provide direct incentives for businesses to account for their costs of carbon emissions.

Carbon pricing is essentially putting a price on emissions, according to the World Bank. It can be a tax based on something like the carbon content of fossil fuels or can be part of a cap-and-trade system that creates supply and demand for emissions, such as low emitters selling allowances to large emissions producers, which will ultimately set carbon prices.

Almost 40% of emissions come from power generation, according to the S&P Global Ratings report. Transportation, industries, and buildings make up much of the rest.

According to the report, utilities account for the vast majority of emissions revenue intensity per ton of Scope 1 emissions, followed by materials, energy, and transportation. The report says that as policies expand and become more financially impactful to businesses, those that have successfully lowered emissions will have a competitive advantage.

Even if prices are not predictable, companies that have prepared for carbon pricing will be more able to adjust their operations. The report also says it expects some companies will need to invest in projects in the long-term to reduce emissions intensity.

Currently, few carbon pricing policies exist, and those that do cover only about a quarter of the world’s emissions. As policies increase, which will vary based on local and economic considerations, carbon prices will too.

The EU’s carbon price is more than $81 per ton of carbon dioxide equivalent, and S&P Global Ratings expects that to increase to around $102 beyond 2025, especially as more net-zero targets are established. The OCED says the price needs to be more than $120 per ton of carbon by 2030 to meet 2050 net-zero targets and as of 2018, 12% of emissions in its member countries were priced at that level.

The S&P Global Ratings report also finds that raising carbon prices above $100 by 2030 could impact the gross national products of many countries.

The largest carbon markets by emissions coverage are the EU and China. The United Kingdom, Canada, and some states in the US have established markets as well. The World Bank says there are 34 emissions trading systems in the world, most of them at sub-national levels in North America and Asia-Pacific.

Source: Environmental Leader

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