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Carbon Pricing, In Various Forms, Is Likely To Spread In The Move To Net Zero

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According to S&P Global Ratings latest research paper, ‘Carbon Pricing, In Various Forms, Is Likely To Spread In The Move To Net Zero‘, government policies seeking to transition economies to net-zero emissions are likely to increase globally. These policies include carbon pricing regulations, one of the policy levers S&P Global Ratings has observed being used by some governments as they aim to achieve emissions abatement targets.

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Adopting Carbon Pricing Policies

The paper – which draws on the insights of S&P Global Ratings, S&P Global Commodity Insights, and S&P Global Sustainable 1 – puts forward that, over time, a greater number of countries will likely adopt some form of carbon pricing policies as part of broader policy mixes, as countries continue to address their need to reduce carbon emissions to mitigate global warming.

Key takeaways from the report are summarised below:

  • Many economists argue that carbon-pricing policies are one of the most efficient policy levers to encourage reductions of greenhouse gases (GHG). From an economic perspective, it provides direct incentives for households and firms to account for the environmental cost of carbon emissions.
  • Relatively few carbon pricing regulations are currently in place, covering less than a quarter of global GHG emissions. The largest carbon markets by emissions coverage are found in the EU and China.
  • The EU’s carbon price is about €80/tCO2e (ton of CO2 equivalent) today, supported by its Fit for 55 environmental package and impetus from the Russia-Ukraine conflict and gas crisis. This paper expects the EU’s carbon allowance prices to increase and exceed €100/tCO2e from 2025 onward, as the EU steps up its transition to net-zero.
  • Sectors such as utilities, materials, and energy and transportation are the most carbon intensive on a direct emissions basis.
  • For the rest of 2022, further developments in the Russia-Ukraine conflict are likely to impact emissions from the EU power sector, as member states seek to extend more polluting coal-fired generation and LNG imports capacity to meet short-term demand, in response to potential sanctions imposed over Russian oil and gas imports.

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