Government policies aimed at transitioning economies to net zero emissions are set to increase globally, given the urgency to mitigate the impacts of climate change. These are likely to include some form of carbon price regulation, one of the policy levers used by some governments to achieve emissions reduction targets. Many economists argue that carbon pricing policies are one of the most efficient policy levers to encourage the reduction of greenhouse gas emissions. From an economic point of view, they provide direct incentives for households and businesses to consider the environmental cost of carbon emissions. This is what we learn from a report by S&P Global Ratings.
“There are currently relatively few regulations on the price of carbon, which cover less than a quarter of global greenhouse gas emissions – the experts recall -. The largest carbon markets by extension of emissions are found in the EU and China, while others concern the UK, Canada, some US states and Asia, among others. The carbon price in the EU is now around 80 euros / tCO2e, supported by the Fit for 55 environmental package and by the thrust generated by the Russia-Ukraine conflict and the related energy crisis ”. The US rating agency expects the price of EU carbon allowances to exceed 100 euros / tCO2e starting in 2025, as the EU accelerates its transition to zero emissions. Political and economic considerations, such as affordability, are more oriented towards a gradual and localized application of carbon pricing policies, rather than towards a single global carbon price.
“For the remainder of 2022, further developments in the conflict between Russia and Ukraine are likely to have an impact on emissions from the EU energy sector, as member states seek to expand coal-fired production capacity and LNG imports, plus pollutants, to meet short-term demand, in response to potential restrictions on imports of oil and gas from Russia ”, conclude from S&P Global Ratings.