Positive Outlook for Carbon Trading Markets in 2015

The carbon trading markets have shown resilience and optimism in 2015, according to the Market Rankings, with increased regulatory certainty and heightened activity in many markets. Participants have displayed bullish sentiments, particularly towards the North American and European regimes. Several companies, including Ruby Canyon Engineering, Element Markets, and Redshaw Advisors, have expanded their workforce or are planning to do so in anticipation of business growth. While Evolution Markets aims to triple the size of its London team, it is not solely focused on the carbon market but covers its entire commodities platform.

Price trends have been positive in several major markets, with the exception of China, where carbon credit prices fell throughout the year in most of the seven pilot markets, especially in Beijing, Shanghai, and Guangdong. This decline has been attributed to the anticipated launch of a national market, creating uncertainty about the future of allowances generated under the pilot programs. However, the expected publication of an outline for the national scheme in the coming year is predicted to bring stability to the market.

In Europe, the EU Emissions Trading System (ETS) experienced a significant year with signs of the market finding its stability after years of regulatory uncertainty. The implementation of backloading, a mechanism introduced to remove surplus allowances from the ETS, has contributed to this stabilization. The approval of the Market Stability Reserve (MSR) by the European Commission further restored market certainty. The MSR will remove surplus allowances from the market during periods of oversupply and inject additional allowances when supply is low.

Looking ahead, discussions surrounding Phase Four of the EU ETS, which will cover the period from 2021 to 2030, have emerged. This phase will exclude offsets from the ETS entirely, posing increased carbon risk for companies, particularly factories, as they will have fewer options for managing emissions. The principle of 100% free allocation for exposed industries is also being eroded, leading to debates about the protection of trade-exposed sectors.

In North America, the election of a more climate-focused government in Canada and President Obama’s commitment to his climate change strategy in the US have fostered a positive outlook. The Clean Power Plan (CPP) proposed by Obama, if implemented, will require power plants across the country to reduce their carbon emissions. The introduction or expansion of trading schemes is seen as a viable means for states to achieve these targets, with California and the Regional Greenhouse Gas Initiative (RGGI) leading the way.

While challenges and uncertainties persist in various markets, including legal disputes in California and volatility in the offset market, the overall sentiment is that carbon trading is maturing and gaining greater acceptance. Participants are increasingly incorporating trading systems into their long-term planning and hedging strategies. Despite ongoing challenges, the winners of the Market Rankings remain optimistic about the future of carbon trading markets and expect further growth and opportunities in the coming year.