Opinion

COP26: make or break for global emissions trading

Effective carbon pricing is essential to achieve the emissions reductions required by the Paris Agreement

For anyone questioning the importance of COP26, the publication this week of the Intergovernmental Panel on Climate Change’s landmark climate report should dispel any lingering doubts. Climate Change 2021: The Physical Science Basis underscores the urgency of strong, sustained cuts in greenhouse gas emissions to address a growing, man-made climate emergency.

The aim of COP26 is to turn the good intentions of the Paris Agreement into palpable action — with consequences that will shape the natural resources sector for decades to come. Our weekly COP26 briefing will bring you the lowdown on the key issues, focusing on a different topic each time. This week we explore global emissions trading — fill in the form to read the report, or read on for a quick overview.

Why is carbon pricing necessary?

Carbon pricing is essential to incentivise emissions reductions and help innovative low-carbon technologies compete with established, more-polluting technologies. Yet more than two decades after the Kyoto Protocol was signed, only 12 billion of the 35 billion tonnes of carbon emitted annually are currently covered by a carbon price. What’s more, pricing is not at the level required to meet Paris Agreement goals.

Why is a global market in carbon important?

Carbon trading allows those who can reduce emissions faster or more cheaply to sell excess reductions to those who need them, at a price decided by the law of supply and demand. Such a system prioritises emissions goals, unlike carbon taxes which prioritise price certainty. We estimate a globalised emissions trading market could be worth as much as $22 trillion by 2050.

Why is COP26 so vital for global emissions trading?

Article six of the Paris Agreement provides for a framework for emissions trading but is the last component still to be resolved. The future of carbon markets hinges on delegates working out a solution — agreement would help equalise prices across traded markets globally, while failure would place more importance on regional and voluntary markets. But a number of issues need to be resolved for a global emissions market to emerge. Most contentious are the potential double counting of traded emissions reductions between the originating and purchasing country, and the carrying forward of Kyoto-era credits, reductions and allowances.

What’s inside our weekly COP26 briefing?

Our report on global emissions trading is the second in a series of weekly briefings in the run up to the start of COP26 on 1 November. Each report includes:

  • Key takeaways
  • Charts and tables
  • Where to find more information
  • How Wood Mackenzie can help your business with issues raised

Fill in the form at the top of the page to read the full report, or scroll down to see what to expect in future editions.

What’s coming up?

18 August COP26 briefing: Oils and downstream

25 August COP26 briefing: Upstream

1 September COP26 briefing: Power, solar, wind and storage

8 September COP26 briefing: Gas and LNG

15 September COP26 briefing: Coal (thermal and met)

22 September COP26 briefing: Carbon capture and storage (CCS) and hydrogen technologies

29 September COP26 briefing: Base metals

6 October COP26 briefing: Petchems

13 October COP26 briefing: Electric vehicles and battery raw materials

20 October COP26 briefing: The corporate response

27 October COP26 briefing: Economics of energy

1-12 November COP26 in Glasgow