We’ve written about the carbon market over the years. We’ve asked, for example, whether blockchain technology could boost its growth. We’ve highlighted the success of California’s cap-and-trade system, and we’ve suggested that the carbon market shares a lot of similarities with another asset class that grew from humble beginnings – emerging-market debt.
Today, the carbon market continues to grow. Global trading volume has been on the rise, reaching $215 billion last year. Europe’s Emissions Trading Scheme (ETS) accounted for the largest share, followed by North America, where two regional trading programs operate. (Yes, carbon trading exists in the US. California is part of a Canadian trading network, and ten eastern states operate RGGI, the Regional Greenhouse Gas Initiative.)
But this year will be a mixed story, in all likelihood. The economic slowdown brought on by the pandemic caused global carbon emissions to plummet, so 2020 trading volume may drop, too. But China’s emissions trading program is set to begin later this year, which will boost global volumes significantly. In its 2019 pilot phase, the value of traded allowances in China reached roughly $300 million.
All of this is taking place at a time when carbon economics has all but disappeared from the policy agenda. Aside from a few economists and policy wonks, no one talks about setting a carbon price or expanding cap-and-trade; talk of a carbon tax disappeared early from the debate during this presidential election year.
But maybe it’s better this way. Perhaps the best thing for the carbon market is for it to stay quiet and keep succeeding. It should keep adding participants and continue building its accounting and reporting infrastructure. Steady, demand-driven growth isn’t dramatic or exciting (unless, like us, you’re into this stuff), but that’s how a successful market is built.
Which brings us to the Task Force on Scaling Voluntary Carbon Markets, a new initiative launched this week by Mark Carney, former head of the Bank of England and now UN Special Envoy for Climate Action. The group will focus on creating a well-functioning voluntary carbon market to meet the growing needs of companies and investors. It’s another concrete step toward a modern marketplace that can manage risk and allocate capital as the world transitions to a low-carbon future.
Hardly anyone reported on the new task force. That is a very good start.