Carbon Market Survey 2016
WILL PARIS BE A CATALYST FOR
MORE EMISSION TRADING?
TO THE POINT
Paris injects optimism in carbon markets. Nearly half of the survey
participants believe emission markets will become more important in the
years up to 2030, following the mention of “International Transfers of
Mitigation Outcome” in the Paris Agreement. One third expect emission
trading to stay at current levels, the rest foresee markets to recede.
This relatively optimistic appraisal of the Paris effect contrasts
with actual market trends after world leaders left the climate summit
in December: since early 2016 carbon prices have fallen significantly in
Europe, North America and China.
Strong belief that cap-and-trade will be in place in 2020. Some 71%
of respondents believe their country will be using emission trading as a
climate policy instrument. 73% expect to see subsidies, 54% green taxes.
Cap-and-trade seen as most cost-effective way to reduce emissions.
51% of European respondents see the EU emission trading system (EU
ETS) as the most cost-effective way to reduce emissions. Two-thirds
believe it will “continue to be the main instrument of EU climate policy”.
Carbon price matters for investment decisions. One third of European
compliance entities (companies whose emission are covered by the EU
ETS) see the cost of carbon emissions as a “decisive factor” for investment
decisions, 55% say it is “part of the calculations”.
CONTENTS
3Executive summary
6 Introduction
8 General perceptions of cap and
trade and Paris Agreement
11 Impact of carbon trading on
compliance entities
14Europe
18North America
20China
22 South Korea
24CDM
27Aviation
29Appendix: Methodological
considerations
30Colophon
Lead authors:
Anders Nordeng
Senior Analyst
[email protected]
Maria Kolos
Analyst
[email protected]
Carbon market survey 2015
6 may 2016
Thomson reuters commodities
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The carbon team is located in Oslo (Head Office), Houston, Washington, Beijing, Seoul and Kiev.
Carbon Market Survey
The Carbon Market Survey 2016 ran from 24 February to 21 March, and garnered replies from 908 respondents all over
the world. The survey, including this report, is the result of co-operation between Thomson Reuters staff in Oslo, London,
Houston, Beijing, Seoul and Kiev. Questions were drafted and answers interpreted by a team of analysts including Stig
Schjølset, Marcus Ferdinand, Emil Dimantchev, Tom Marcello, Hongliang Chai, Gayoung Lee and Maria Kolos. Figures and
layout by Maria Kolos. Lead analyst and responsible editor was Anders Nordeng.
For citations please refer to: “Thomson Reuters Carbon Market Survey 2016”, Nordeng, A. et al., 30 pages.
carbon market survey 2016
Executive summary
Paris seen as a catalyst for carbon trading
The Carbon Market Survey 2016 shows that support of
emission trading as a climate policy instrument inched up
compared to 2015. Among those who shared their opinion
on this, 69% agree with the statement that “cap-and-trade
is the best we can agree on nationally and internationally”.
Some 23% prefer the statement that it is “the best way in
theory and in practice”.
In 2015 the shares were 71% and 21% respectively, meaning that 2% changed from a pragmatist to a more ideal
assessment. The remaining 8% agree with the statement
that it “does more harm than good” (same share in 2015
and 2016).
If we compare attitudes across locations, we see that
American and Chinese respondents voice relatively strong
support to cap-and-trade (close to 40% seeing it as the
best way). The U.K. on the other hand shows a significant
share of sceptics, with 16% seeing it as harmful. We also asked respondents which climate instruments they
think will be in place in their jurisdictions in 2020. Among
those who ticked one or more of the offered alternatives
cap-and-trade got a response rate of 71%. This was slightly
behind subsidies (expected by 73%), and ahead of taxes
(54%) and regulations (27%).
Overall, respondents seem to be relatively pleased with the
Paris Agreement struck last December. Some 47% express
satisfaction (either somewhat or very), 33% take a neutral
stance, and the remaining 21% give a negative verdict.
A very similar distribution can be seen on the question
whether the Paris Agreement will spur market expansion
(Some 48% believe it will). Among government respondents and international organisation respondents, close to
70% believe markets will expand/link.
One conclusion of the survey is that it points to a relatively
high degree of optimism, especially when compared to
market developments after the agreement was reached in
Paris in December. Since January, carbon prices have fallen
significantly in all major markets.
EU ETS seen to have impact
One of the main objectives of the Carbon Market Survey
is to assess how the compliance companies (those whose
output of CO2 is capped by an emission trading system)
feel its effects. Does it lead them to reduce emissions? Does
it affect competitiveness and investment decisions?
For Europe, the 2016 edition shows an increase in the share
saying that the European emission trading system (EU ETS)
“caused reductions in the early years, but has little impact
today”. Some 26% of the respondents chose this statement
in 2016, compared to 19% in 2015. Some 35% say it “has
6 May 2016
caused and continues to cause reductions”, up from 32%
last year. The share of “not likely to cause any reductions by
2030” dropped from 29% to 23%.
Two thirds of European compliance respondents say that
carbon cost is “somewhat important” for their competitiveness. Only 16% see it as “detrimental”, a significant drop
from 27% the previous year. At the same time, the share of
“little or no effect” fell from 21% to 14%.
Only very few European companies (no American ones)
signal readiness to move production to avoid carbon cost.
For investment on the other hand, 33% of the European
respondents see long term carbon prices as a “decisive factor”. Another 55% see it as “part of the calculations”.
From the general section of the survey (not limited to compliance companies) we see that 51% of respondents agree
with the statement that the EU ETS is “the most cost-effective way to reduce emissions. Some 23% disagree, and 26%
take a neutral stance.
Mixed views in Asian markets
With regard to emerging carbon markets we see that 31% of
respondents expect the Chinese national emission trading
scheme to become operational as scheduled in 2017, the
highest share (33%) believe it will start in 2019 or 2020.
Close to half of the China section respondents believe some
of the current pilot schemes will continue to exist in parallel to the national system (44%). A majority thinks pilot
emission allowances will be converted into new national
allowance units.
South Korea respondents take cautious views on the prospect of the Korean emission trading system (KETS) after
a first year of very feeble trading and worries about insufficient allocation. Most respondents prefer not to give an
opinion on the questions of a possible change in the BAU
forecast and a possible adjustment of the allowance allocation. Some 43% believe the market will be short in the first
trading period (2015-2017).
International trading of emission rights between different
jurisdictions has long suffered from falling demand, most
notably in the CDM market. A key event to watch out for
this year is the September assembly of the International
Civil Aviation Organization (ICAO). If the world’s countries
agree to curb emissions from airlines, and if they agree on a
system of emission credits, this could spur demand both for
CDM and for new credit units.
The survey results show that 27% expect a concrete call
for aviation emission to peak in 2020. Some 34% expect a
statement without firm obligations or a fixed timeline, and
another 20% expect the decision will be delayed altogether.
3
carbon market survey 2016
List of figures
1.1. Survey population by market interest
1.2. Survey population by role
1.3. Survey population by location
2.1. Cap and trade as climate policy instrument. Selected roles.
2.2. Cap and trade as climate policy instrument. Selected locations.
2.3. Paris satisfaction. Selected roles.
2.4. The 2 degrees target. Selected roles.
2.5. Will Paris support markets? Selected roles.
2.6. Perceptions of cap-and-trade. Year-on-year.
3.1. Reduction effect
3.2. Reduction effect. Europe. Year-on-year.
3.3. Reduction effect. Selected segments.
3.4. Competitiveness effect
3.5. Competitiveness effect. Europe. Year-on-year.
3.6. Offshoring effect
3.7. Investment effect.
3.8. Investment effect. Selected segments.
4.1. Perceptions of EU ETS
4.2. Perception trend
4.3. January price drop
4.4. Impact of phase 4 regulation
4.5. Impact of benchmark calculations
4.6. Surplus holdings
4.7. Selling horizon
4.8. Carbon inventory horizon
4.9. Annual allocation and selling
6 May 2016
4
carbon market survey 2016
5.1. WCI expansion
5.2. Drivers of trading
5.3. Compliance strategy
5.4. Will New Jersey rejoin RGGI?
5.5. Legal challenge of Clean Power Plan
6.1. Chinese emission peak expected next decade
6.2. National ETS expected - but not on schedule
6.3. Pilot schemes expected to continue
6.4. Pilot allowance units in the national scheme
6.5. Cautiously optimistic offset market
7.1. Allocation sufficiency
7.2. Expected trading volume in 2016
7.3. KAUs price expectations
7.4. Change of BAU forecast in 2017?
7.5. Upward adjustment of allocation?
7.6. Linking to other carbon markets
8.1. CDM respondents by role
8.2. CDM demand expectations
8.3. New sources of demand
8.4. Credit use for Paris commitments
8.5. Verification cost
8.6. De-registering CDM
9.1. Decision to curb aviation emissions?
9.2. Eligible credits
9.3. Project type restrictions
9.4. Purchasing timeline
6 May 2016
5
carbon market survey 2016
1.Introduction
The 2016 Carbon Market Survey
confirms the slight uptick in confidence over the last couple of years,
after sentiments ebbed in 2013. On
key questions such as whether emission trading is seen as a cost-efficient
instrument for greenhouse gas abatement responses this year reveal a
slightly more positive attitude than in
2015.
The climate summit in Paris was the
defining event in the world of carbon
in 2015. As it turned out, most observers and stakeholders seemed to take
comfort from the fact that world leaders reached an agreement, whereby
nearly all countries take on some kind
of commitment to curb emissions. The
deal will not by itself put us on track to
limit global warming to 2 degrees, but
it established a framework that should
ensure increasing ambition over time.
To everyone’s surprise, pro-market
supporters even succeeded in inserting a clause on “transfer of mitigation
outcomes” (code for trading) in the
final text.
Generally speaking the sentiment
seems to fit well with the observed
trends in the carbon markets in 2015.
We assess transacted volumes to
have fallen to 6.2 Gt in 2015 (from 7.7
Gt the previous year), but because of
strengthening prices in Europe, the
value of those transactions increased
from €44 billion euros to € 48 billion.
Nevertheless, both in Europe and
North America, the December optimism was followed by falling prices in
the beginning of 2016. In the EU ETS
the reference contract lost more than
a quarter of its value over the course
of January, dropping from €8.29/t to
€6.07/t, taking market participants
and observers by surprise.
About the Carbon Survey
Against this backdrop, we release our
eleventh annual survey report of the
world’s carbon markets, covering the
following markets: EU ETS, WCI, RGGI,
the Chinese pilot markets, South
Korea, CDM and aviation emissions. It
6 May 2016
Figure 1.1. Survey population by market interest
”Which emission market(s) are you involved in or following?” 802 respondents ticked
one or more of the following, for a total number of 1,518 entries.
Other
Kazakhstan ETS
134
16
New Zealand ETS
47
South Korea ETS
48
Aviation emissions
79
Joint Implementation
89
Chinese pilot ETSs
95
RGGI (North-East U.S.)
96
WCI (California and Quebec)
127
Clean Development Mechanism
286
EU ETS
501
Source: Thomson Reuters Carbon Market Survey 2016
also includes views on the recent Paris
Agreement, and expectations for how
this might affect emission trading going forward.
Initiative (WCI) came third with 127
respondents, before RGGI and the
Chinese pilots, with 96 and 95 respectively. See Fig. 1.1.
The survey ran from 24 February to 21
March, using Qualtrics, a web-based
questionnaire tool. We reached out by
e-mail to three main groups of recipients all over the world: respondents
from previous surveys, regular users of
the carbon section of Eikon (Thomson
Reuters’ desktop market data solution), and to other contacts: traders,
emitting companies, government/
administration, international organisations, and industry federations.
At the lower end were Kazakhstan (16),
New Zealand (48) and South Korea
(69). A new addition this year was a
separate section on aviation emissions, which garnered responses from
79 participants.
In total, we garnered views from 908
respondents on 103 different questions. Some general questions were
asked to all survey participants. Most
were related to specific markets and/
or roles, and were only asked to those
who ticked the corresponding boxes.
This naturally led to wide differences
in the number of collected responses
for the various markets.
Participants were first invited to indicate the market(s) in which they are
involved (they could tick more than
one). Unsurprisingly, the oldest markets still attract the highest number
of respondents, with 501 ticking the
EU ETS and 286 indicating interest
in CDM. California’s Western Climate
Furthermore, 134 respondents
indicated interest in other emission
or climate-related markets, naming
among others: REDD+, Mexico, Tokyo
and Alberta.
Overall, the number of respondents
dropped by some 300 compared to
the 2015 edition, a fact that probably
reflects downscaling in several market
segments, most notably certification
companies leaving the CDM.
Many roles represented
Some 756 respondents chose to
define their role in the carbon markets. The category drawing the most
responses was “company with emissions covered by an ETS” (compliance
entities) at 137, these are really the
key stakeholders in any cap-and-trade
scheme. See Fig. 1.2.
Next was “other services” (113), which
includes market analysis. The third
largest group was “project devel6
carbon market survey 2016
oper” (93), followed by “university”
(63), “government” (62) and “carbon
trader” (51).
Figure 1.2. Survey population by role
“What is your organisation’s role in the emission markets?” N=756.
In terms of geographical location, we
see that the U.S. has the highest number of respondents - 90 – followed by
the UK at 55 and a number of other
European countries. If we look at the
level of continents rather than specific
countries, Europe is clearly home to
the largest group of survey participants. See Fig. 1.3.
Other
40
Legal services
6
Media
7
International organisation
20
Financial services
21
Trading services
30
Interest group
31
Technical consultancy
41
Trader in other commodities
41
Carbon trader
Structure of this report
51
Government/administration
62
University/non-commercial
63
Offset project developer
The first part of the survey contained
general questions asked to all respondents: how they perceive cap-andtrade as an instrument for emission
reduction, what other instruments
they believe will be in place in 2020,
and how they see the Paris Agreement
and its effects on carbon trading. This
is summarized in Chapter 2.
93
Other services
113
Compliance company
137
Source: Thomson Reuters Carbon Market Survey 2016
Some emission trading schemes are
not covered in this report: Kazakhstan
(trading was recently put on hold),
Australia (the Carbon Pricing Mechanism as such is defunct, although
there is an element of credit trading
in the Emission Reduction Fund) and
New Zealand, whose emission trading
system is operational but limited, and
for practical purposes no longer connected to other systems (New Zealand
cannot import credits from CDM).
Chapter 3 presents what compliance
entities report on the impact of being
subject to an emission trading system:
has it led them to reduce their emissions? Is it important for their investment decisions? Do they consider
moving production to a less stringent
jurisdiction?
This report does not present all the
103 questions included in the survey.
For the sake of offering an accessible
format we have selected the findings we deem the most interesting
and relevant. The selection is clearly
weighted in favour of the EU ETS,
which, being the biggest market,
We then proceed market by market,
from the established systems in Europe and North America, via China’s
and South Korea’s ones, followed by
CDM and ending with the potentially
promising market in offsets for aviation emissions.
received the most responses and is
likely to be of interest to many carbon
market stakeholders.
Given the many topics we want to
shed light on, the questionnaire can
appear long and time consuming.
In appreciation of this we informed
participants that they would compete
for the prize of an iPad, to be drawn
randomly among the respondents
completing the questionnaire. The
lucky winner was Marnix Vink, position
manager at energy company Essent,
in s’Hertogenbosch, the Netherlands.
Figure 1.3. Survey population by location
“In which country/region/continent are you located?” N=731.
90
62
44
41
Japan
12
8
South Korea
New Zealand
21 19 18
India
Africa
20
China
28
Australia
Brazil
24
Americas, unspecifd.
USA
Balkans
Europe, unspecifd.
Switzerland
Poland
36
20
16 18
16
Mitteleuropa
Italy
France
Benelux
Germany
UK
Nordics
21 21
27
25
Iberia
29
Asia unspecifd.
60
Canada
55
Source: Thomson Reuters Carbon Market Survey 2016
6 May 2016
7
carbon market survey 2016
2.General perceptions on cap and trade and Paris
The questions in this section were
asked to all participants, irrespective of geography and role. They were
asked to choose reply options for various statements.
Climate policy instrument
The first findings, shown in Figure
2.1, tell us that a majority of 69% sees
cap-and-trade as “not perfect but the
best we can agree on”. Some 23%
consider it an ideal instrument and 8%
are of the opinion that it does more
harm than good.
We see that international organisations, government and technical
consultancies are the most positive.
The two first groups are most directly
involved in policy making, so they
might be biased in favour of their own
importance.
For all groups except international
organisations, the majority opts for
the pragmatic assessment (the best
we can agree on given the political
conditions).
Few see ETS as directly harmful, but
3 of the 21 lobby/NGO respondents
do so, most likely organisations that
oppose emission trading as a matter
of principle. Interestingly 15 of the 112
compliance respondents also have a
very negative view on cap-and-trade,
they are probably worried about
carbon leakage. They might very well
be unhappy about any climate policy
measures; from the wording of the
question we can only infer that they
are not happy with ETS, not whether
they would prefer another instrument.
If we break down by country (Fig. 2.2),
we see that Americans and Chinese
are clearly the most enthusiastic (close
to 40% saying that cap-and-trade is
the best way).
The American results might reflect an
inherent preference of market based
solutions over direct regulation. However, the U.S. does actually have more
command-and-control measures than
most other regions at the moment,
with their numerous fuel standards
and emission limits. The Clean Power
6 May 2016
Figure 2.1. Cap and trade as climate policy instrument. Selected roles.
”Chose the statement that best expresse your view on cap-and-trade as a policy
instrument for emission abatement. N=610 (not counting “other” and “no opinion”.
Total (610)
University (53)
Internatl orgsation (12)
Govnment/ admin (47)
Lobby/NGO (21)
Technical consultancy (38)
Carbon trader (45)
Project developer (83)
Compliance company (112)
0%
20%
Does more harm than good
40%
Best we can agree on
60%
80%
100%
The best way in theory and in practice
Source: Thomson Reuters Carbon Market Survey 2016
Figure 2.2. Cap and trade as climate policy instrument. Selected locations.
India (19)
China (16)
Africa (14)
Brazil (20)
USA (75)
Poland (9)
Nordics (40)
UK (43)
0%
20%
Does more harm than good
40%
60%
Best we can agree on
80%
100%
The best way in theory and in practice
Source: Thomson Reuters Carbon Market Survey 2016
Plan is also based on command and
control, although it gives some flexibility to states in the implementation.
Hence, the complexity in the current
framework could be a reason why
American respondents want a simple
cap and trade system. The Chinese
position can probably be seen as an
indication of great expectations for the
upcoming national ETS.
The share of sceptics is highest in Brazil and in the UK, two countries with
explicitly pro market governments,
but where civil society takes a more
mixed view. Again, the pragmatic view
prevails in all countries.
We also asked respondents which
climate instruments they think will be
in place in their jurisdictions in 2020.
Among those who ticked one or more
of the offered alternatives cap-andtrade got a response rate at 71%.
This was slightly less than subsidies
(expected by 73%), and ahead of taxes
(54%) and regulations (27%).
The Paris Agreement
This question was asked as a scaling
from 1 to 5 where 1 was very dissatisfied and 5 very satisfied. We have
merged 1 and 2 into “unsatisfied”, 4
and 5 into “satisfied” and left 3 to be
considered “neutral”.
8
carbon market survey 2016
Fig 2.3 shows that the two groups
most directly involved in negotiations – government and international
organisations – are the most happy.
Also among projects developers and
interest groups more than 50% opt for
satisfied. Universities, carbon traders
and technical consultancies have the
highest share of unsatisfied.
In terms of geography, Australian
respondents are the most happy with
the outcome, followed by the Nordics and the Americans. The Nordics
however also show the highest share
of unsatisfied, pointing to a polarized
view in these countries. In India, China,
Africa and Poland, most respondents
opted for a neutral assessment.
On track for 2 degrees?
Overall, only a minority of respondents believe the Paris Agreement
will set the world on track to reach
the 2 degrees target (Fig. 2.4). Most
chose option 2 or 3 on a scale from
1 to 5. In terms of roles we find the
highest share of optimists among
international organisations (close to
50%). This comes across as a little
surprising, since as privileged insiders they should be well aware that we
are not on track. Again, they may be
subconsciously discarding the possibility that what they have produced is
insufficient.
“Other services” and universities are
the most sceptical. On this question we could assume university
respondents to be relatively unbiased
since they are not directly involved in
negotiations, nor do they have a direct
commercial interest. However, as
providers of the scientific data feeding
into the negotiations, they could be
seen as interested in defending their
data/forecasts.
If we look at countries we see that
scepticism is strongest in the U.S.,
Poland and France.
We cannot infer from the wording
of the question to what extent respondents would have preferred the
agreement to contain more ambitious
emission reduction targets.
Many are undoubtedly of this opinion,
i.e. they want to reach the 2 degrees
6 May 2016
Figure 2.3. Paris satisfaction. Selected roles.
“How satisfied are you with the international climate agreement in Paris?” N=617.
Total (617)
University (59)
Internatl orgsation (18)
Govnment/ admin (49)
Lobby/NGO (29)
Technical consultancy (35)
Carbon trader (37)
Project developer (88)
Compliance company (88)
0%
20%
Unsatisfied
40%
Neutral
60%
80%
100%
Satisfied
Source: Thomson Reuters Carbon Market Survey 2016
Figure 2.4. The 2 degrees target. Selected roles.
”Do you think the Paris Agreement will set the world on course to reach the 2
degrees target? N=635.
Total (635)
University (59)
Internatl orgsation (18)
Govnment/ admin (49)
Lobby/NGO (30)
Technical consultancy (36)
Carbon trader (42)
Project developer (87)
Compliance company (95)
0%
20%
Unlikely
40%
Neutral
60%
80%
100%
Likely
Source: Thomson Reuters Carbon Market Survey 2016
Figure 2.5. Will Paris support markets? Selected roles.
”How do you see the role of markets in the period up to 2030, in light of the mention
of “International Transfers of Mitigation Outcome” in the Paris Agreement?” N=570.
Total (570)
University (55)
Internatl orgsation (15)
Govnment/admin (40)
Lobby/NGO (25)
Technical consultancy
(34)
Carbon trader (39)
Project developer (84)
Compliance company
(84)
0%
Expand/link
20%
40%
Stay at current levels
60%
80%
100%
Recede
Source: Thomson Reuters Carbon Market Survey 2016
9
carbon market survey 2016
target, and would like the Paris Agreement help achieve that. However, it is
also possible to interpret the selection of a low score as a way to signal
discontent with the agreement as
such. In this case the logic would be
“I do not like the agreement, hence I
do not think it will it will deliver on its
promises”.
The largest share of optimists is found
in China, where close to half of the
respondents believe Paris puts us on
track. Also Brazil, Africa, Australia and
the Nordic countries have relatively
high shares of optimists (approximately one in four).
Support from Paris?
We asked respondents how they expect international emission markets to
develop in the years to come, against
a mixed backdrop of struggling CDM
and unexpectedly positive signals
from Paris. International organisations
and governments are the most optimistic, with close to 70% expressing
belief in expansion/linking between
now and 2030 (Fig. 2.5).
Technical consultancies have a low
share of optimists and the highest
share of pessimists. This probably
reflects the fact that many of these
respondents are CDM verifiers (there
is no salvation for CDM in the Paris
Agreement).
Figure 2.6. Perceptions of cap-and-trade. Year-on-year.
”Please chose the statement that best expresse your view on cap-and-trade as a
policy instrument for emission abatement.
21%
21%
23%
67%
71%
69%
12%
8%
8%
2014 (N=831)
2015 (N=794)
2016 (N=610)
Does more harm than good
Best we can agree on
The best way – in theory and in practice
Source: Thomson Reuters Carbon Market Survey 2016
Historical trend line
The support for cap-and-trade has
not changed dramatically since we
started asking about this in the survey.
The current wording of this question
was introduced in 2014, and Fig. 2.6
shows developments since then. We
see that the share of sceptics dropped
from 12% in 2014 to 8% the following
year. In 2016 the share of those that
see cap-and-trade as an ideal solution
increased from 21% to 23%.
At a country level, Australia and the
U.S. are the most optimistic, with
more than 50% expecting markets to
expand. India and African countries
show the highest share of pessimisms,
with 30-40% expecting markets to
diminish. Poland is an outlier, with
little expectation either for growth or
decrease (most believe trading will
stay at present levels).
6 May 2016
10
carbon market survey 2016
3.Impact of carbon trading on compliance entities
For each cap-and-trade system we
included subsections for compliance
company respondents, i.e. those who
represent entities that have to report
emissions and to hand in allowances to cover them. We consider the
feedback from these key stakeholders
as particularly interesting, and this
chapter presents their opinions on
being part of an ETS: whether it has
actually led to emissions reductions,
if it damages competitiveness, if it affects investment decisions, etc.
Up to 75 participants answered the
questions to European compliance entities (not everyone answered all questions), whereas the similar questions
for WCI (California and Quebec) and
RGGI (north-eastern U.S.) garnered up
to 9 and 7 responses. Only a handful
answered the questions on compliance in New Zealand, China and
South Korea, making these samples
insufficient for statistical analysis.
Figure 3.1. Reduction effect
“To what extent has the EU ETS/WCI/RGGI caused your company to reduce
emissions?”
RGGI (N=7)
WCI (N=9)
EU ETS
(N=74)
0%
80%
100%
100%
90%
The most important question for assessing the merits of a cap-and-trade
system is whether it actually triggers
emission reductions. In Europe (74 respondents), some 35% chose the option “it continues to cause reductions”,
followed by 26% who ticked “it led to
reductions in the early years, but has
little impact today” (Fig. 3.1). Another
23% agreed with the statement “has
not and is not likely to cause any cuts
between now and 2030”.
6 May 2016
60%
Figure 3.2. Reduction effect. Europe. Year-on-year.
80%
If we look at the historical trend in
Europe (Fig 3.2), we see a relatively
stable picture, although the share saying “the only impact was in the past”
increased from 19% to 26% in 2016. At
the same time the share saying “not
likely to cause reductions by 2030”
dropped from 29% to 23%.
40%
Source: Thomson Reuters Carbon Market Survey 2016
Does it spur cuts?
In WCI (9 respondents), the most
popular option was “has not and is not
likely to cause any cuts”, followed by
“don’t know”. Those two options were
the only ones chosen by the seven
RGGI respondents. Apart from in
Europe, the compliance companies do
not tend to see the cap-and-trade as
drivers for emission reductions.
20%
Caused reductions in the early years, little impact today [option for EU]
Continues to cause emission reductions [EU] / is already causing reductions [WCI, RGGI]
Has caused reductions to be planned, but not yet started
Not likely to cause any emission reductions (by 2030)
Not yet, but will likely cause reductions by 2030 [WCI, RGGI]
Don't know
70%
60%
50%
40%
30%
20%
10%
0%
2013
2014 (N=131)
2015 (N=77)
2016 (N=74)
Caused reductions in the early years, little impact today
Continues to cause emission reductions
Has caused reductions to be planned, but not yet started
Not likely to cause any emission reductions (by 2030)
Don't know
Source: Thomson Reuters Carbon Market Survey 2016
If we break down by type of industry
(Fig 3.3) we see that power/heat
and cement show the highest share
of “continues to cause reductions”.
Metals respondents are more of the
opinion that it “had effect in the early
years, but not anymore”. Paper and
pulp show little belief in the future
effect of the EU ETS.
In terms of reported size of emissions,
half of the big emitters say the EU
ETS led to emission reductions in the
early years, but has little effect today.
Among the medium size emitters the
largest share opted for “continues
to cause reductions”, whereas many
small emitters say it is not likely to
cause any reductions in their companies by 2030.
Competitiveness
In Europe, we see that two-thirds
agree that being subject to a capand-trade scheme “is somewhat
important, but not the main cause
for worry”. Some 16% see it as a very
detrimental factor (Fig 3.4). In WCI
opinions are evenly split between
11
carbon market survey 2016
“somewhat important”, “has little
effect” and “no opinion”. In RGGI, half
of the respondents hold no opinion
on the matter, an indication that they
probably hold positions not directly
related to business operations.
In sum only a relatively low share sees
emission trading as a major challenge.
This is interesting as many businesses
lobbied hard against the creation of
trading schemes, and continue to ask
for more generous allocations of emission allowances.
In Europe, we observe a drop in the
share saying “detrimental”, down from
27% in 2015 to 16% this year. At the
same time, we see fewer opting for
“little effect”, from 21% to 14%. (Fig
3.5).
If we look at industries, aviation stands
out as particularly alarmed, although
the statistical value of this feedback is
clearly limited given the small number
of respondents (2 persons, both of
whom ticked “detrimental”). Also metals and cement are worried, with 40%
and 28% choosing the most pessimistic assessment. Oil and gas on the
other hand stands out with a relatively
high share seeing only a limited effect.
When comparing emission levels we
see that more small than large emitters opt for “limited effect”.
Figure 3.3. Reduction effect. Selected segments.
Aviation (N=3)
Chemicals (N=6)
Paper, pulp (N=6)
Cement (N=8)
Oil, gas (N=8)
Metals (N=4)
Power, heat (N=21)
0%
If we compare industries, we see that
aviation stands out, with one of three
respondent companies saying it has
moved. Cement, oil/gas and metals
all show 20% or more who have or are
considering moving. Still, the overall
trend is clearly that most respondents
intend to remain where they are. The
same goes for all levels of emissions.
40%
60%
80%
100%
Source: Thomson Reuters Carbon Market Survey 2016
Figure 3.4. Competitiveness effect
”Cap-and-trade of CO2 emissions can in some cases increase compliance companies’
production costs. How do you perceive the impact of carbon cost against other factors
such as energy prices, taxes, availability and cost of qualified labour?”
RGGI
(N=7)
14%
WCI (N=9)
29%
57%
33%
EU ETS
(N=73)
Off shoring
Very few reply in the affirmative to
the question if their company has
moved production to avoid carbon
costs. The vast majority of Europeans
say “no”, although one in ten say they
are considering, and one in twenty
confirm having already done so (Fig
3.6). RGGI again shows a high share
of don’t know, as do WCI.
20%
Caused reductions in the early years, little impact today
Continues to cause emission reductions
Has caused reductions to be planned, but not yet started
Not likely to cause any emission reductions (by 2030)
33%
16%
33%
66%
0%
20%
Detrimental
40%
14%
60%
Somewhat important
80%
Little or no effect
4%
100%
No opinion
Source: Thomson Reuters Carbon Market Survey 2016
Figure 3.5. Competitiveness effect. Europe. Year-on-year.
100%
4%
7%
6%
90%
4%
14%
21%
80%
70%
60%
61%
48%
50%
66%
40%
30%
20%
26%
27%
2014 (N=135)
2015 (N=75)
10%
0%
Detrimental
Somewhat important
16%
2016 (N=73)
Little or no effect
No opinion
Source: Thomson Reuters Carbon Market Survey 2016
6 May 2016
12
carbon market survey 2016
Investment
In Europe and WCI, where respondents generally seem to be wellinformed, a clear majority (55%)
agree with the statement that “it does
influence business decisions, but not
decisively”. One third sees it as a decisive factor (Fig 3.7).
A key question in the ongoing policy
discussions in Europe is whether the
low carbon price over the recent years
is still contributing to green investments such as renewable energy generation. In this respect, the fact that
one third of European respondents
do see it as a decisive factor (despite
the low price) is both a little surprising
and encouraging. Policy makers would
no doubt prefer to see this opinion becoming more widespread, but it does
suggest that the expectations about
future prices might be more important
than the short-term outlook.
The historical trend in Europe shows
only limited variation between 2007
(when we started asking this question)
and now, although the share saying
“decisive” did drop from 47% in 2015
to 33% this year.
Among the industry segments, we see
that oil/gas, power/heat and metals see carbon pricing as relatively
important when making investment
decisions (40% or more saying it is
a “decisive” factor). Two of the three
aviation respondents say it is of no
importance (Fig 3.8).
If we break down by size of emissions
we see that big emitters see it as
much more decisive than small ones
(56% and 18% respectively).
Figure 3.6. Offshoring effect
”Has your company moved production outside the EU ETS/WCI/RGGI because of
carbon costs?”
RGGI (N=7)
43%
57%
WCI (N=9)
33%
67%
EU ETS (N=74) 4% 11%
0%
20%
Yes
4%
81%
40%
60%
Not yet, but considering
No
80%
100%
Don't know
Source: Thomson Reuters Carbon Market Survey 2016
Figure 3.7. Investment effect.
”How important is long-term carbon price for your company’s investment decisions?”
RGGI (N=7)
14%
43%
WCI (N=9)
EU ETS (N=73)
43%
56%
8%
0%
55%
20%
No importance
33%
11%
33%
40%
60%
Part of calculations
4%
80%
Decisive factor
100%
Don't know
Source: Thomson Reuters Carbon Market Survey 2016
Figure 3.8. Investment effect. Selected segments.
Aviation (N=3)
Chemicals (N=6)
Paper, pulp (N=6)
Cement (N=7)
Oil, gas (N=9)
Metals (N=5)
Power, heat (N=22)
0%
20%
No importance
40%
60%
Part of calculations
80%
100%
Decisive factor
Source: Thomson Reuters Carbon Market Survey 2016
6 May 2016
13
carbon market survey 2016
4.Europe
All respondents who ticked interest in
the EU ETS were taken to this section
of the survey. The general questions,
such as whether cap-and-trade is a
good way to fight climate change,
what are the perceived reasons for the
recent price drop, etc., garnered some
250 to 340 responses.
Compliance entity respondents were
asked a series of additional questions
on how they perceive the impact of
cap and trade on their own business
operations, as how this affects their
trading behaviour.
Perceptions of EU ETS
We first asked respondents to what
extent (on a scale from 1 to 5) they
agree with some statements about the
EU ETS. We divided the responses into
three categories, and Figure 4.1 shows
that 51% of the respondents find it
to be the most cost-efficient way to
reduce emissions. Slightly less than a
quarter disagrees with the statement.
Some 65% believe the EU ETS will
(continue to) be the main instrument
of EU climate policy up to 2030.
The historical trend line (Fig. 4.2)
shows that support is slightly higher
than last year (up from 49% to 51%),
and very close to the peak year of
2014. Some 40% see the EU ETS as
a mature market, a higher share than
ever before. As can be seen in the
graph, the maturity confidence suffered a dip in 2013 and 2014, probably as a result of falling prices, and
a series of unsuccessful attempts to
intervene in the market.
The defining event so far in 2016 has
been the sharp drop in prices triggered by huge sell-offs in early January. Starting the year at €8.29/t, the
reference EUA Dec-16 contract is now
(late April) hovering around €6. Figure 4.3 shows that most respondents
attribute the price drop to one of two
factors. Either to delayed contagion
from downward trends in other energy
markets (oil, gas, coal and power
prices all fell in 2015, whereas carbon rose), or to a realization among
market participants that the surplus of
emission allowances will not disap6 May 2016
Figure 4.1. Perceptions of EU ETS
”Indicate the degree to which you agree with the following statements. Asked to all
who ticked interest in the EU ETS. N=337.
It is a mature market (N=336)
25%
The most cost-effective way to reduce
emissions (N=337)
23%
Will be main climate policy instrument
up to 2030 (N=347)
14%
Disagree
35%
40%
26%
51%
21%
Neutral
65%
Agree
Source: Thomson Reuters Carbon Market Survey 2016
Figure 4.2. Perception trend
Trends since 2006. N varies from year to year (337 in 2016).
60%
50%
40%
30%
20%
10%
0%
2006 2007 2008 2009 2010
2011
2012
The most cost-efficient way to reduce emissions
2013
2014
2015
2016
It is a mature market
Source: Thomson Reuters Carbon Market Survey 2016
Figure 4.3. January price drop
The European reference carbon contract lost 27% in January, from €8.29/t to
€6.07/t. What caused the sharp drop?” N=307.
10%
New reading of
fundamentals/market
long at least to 2030
14%
37%
Delayed contagion from
downward trends in
other energy markets
Speculative trading
(short-selling)
Other
39%
Source: Thomson Reuters Carbon Market Survey 2016
14
carbon market survey 2016
pear before 2030 at the earliest. Some
14% attribute the drop to speculative
short-trading.
Figure 4.4. Impact of phase 4 regulation
”How do you expect the outcome of the phase 4 review will affect the supplydemand balance in the European carbon market?” N=335
Price expectations
18%
Respondents were asked to forecast
prices in 2016 and 2020 by pinpointing prices on a range going from 0 to
30 euros. Predictions varied widely,
with average forecasts of €6.8/t for
2016 and €11.4/t for 2020. In comparison, our current price forecast is €6/t
for 2016 and €8.7/t for 2020.
The survey participants are divided
in their expectations for the ongoing
phase 4 review. Some 40% believe it
will lead to a tightening of supply (and
help reduce the surplus), 42% believe
it will not. The remaining 18% preferred the option “don’t know” (Fig.
4.4).
One of the core elements of the review
is the question of benchmark calculations for free allocation of emission
allowances (Fig. 4.5). Some 48%
believe the proposed changes will
make it more expensive for European
industry companies in general to
comply with the EU ETS. Some 46%
expect a limited effect, and 6% believe
the changes will make it cheaper to
comply.
40%
Will have little impact
Don't know
42%
Source: Thomson Reuters Carbon Market Survey 2016
Figure 4.5. Impact of benchmark calculations
“How do you see the effect of a change in benchmark calculations for European
industry on average?” N=271
6%
It will make it more
expensive/challenging to
comply with the EU ETS
48%
46%
Most findings on the EU ETS’ impact
on business operations are presented
in Chapter 3, alongside the responses
from compliance entities in other
jurisdictions. We also asked specifically about the perceived effect of
the Market Stability Reserve (MSR).
More than three quarters of the 55
compliance respondents say that the
decision to launch the MSR in 2019
has NOT provided greater certainty for
investment decisions. This is likely one
of the reasons why we see attempts by
policy-makers to discuss the set-up of
the MSR even before the mechanism
6 May 2016
Limited effect
It will make it less
expensive/challenging to
comply
Compliance companies
The first part of the Europe section
was about general perception from
across the range of different stakeholders. The second part sought to establish in more detail how compliance
entity respondents feel the impact on
their own companies, and how this
shapes trading behaviour.
Likely lead to a
tightening of supply, and
help reduce the surplus
Source: Thomson Reuters Carbon Market Survey 2016
has started to withdraw the first allowances.
One important aim of the survey is
to shed some light on the aggregate
size and trend of carbon inventories.
How many allowances are companies
keeping on their accounts? Figure 4.6
shows a clear trend over the last three
years: whereas 43% reported to hold a
surplus in 2014, this share is down to
29% in 2016.
We also asked European compliance entities a series of questions on
trading behaviour, as we aimed to
detect patterns among utilities (power
generators) and industry.
Hedging
We asked utility respondents which
factors they see as most important for
their power forward hedging strategy. They indicated that changes in
the commodity forward curves, the
development of power plan margins
and company-internal strategies were
of highest importance. Mid- to longterm energy policies rank fourth, followed by changing weather patterns.
We followed up with a question on
how utility respondents could deviate
from their baseline internal strategy.
Respondents indicated that such
deviation was possible with 55 % on a
monthly basis and around 61 % on a
15
carbon market survey 2016
quarterly and annual timeframe. This
result confirms to some extent our
previous finding that hedging patterns do vary considerably from year
to year. This is especially related to the
preceding question, indicating that
changes in power, fuel and carbon
prices have a significant impact on
how power producers act in the carbon market.
Figure 4.6. Surplus holdings
“Does your company currently hold a surplus of EUAs?”
52%
43%
38% 38%
37%
29%
24%
20%
19%
Industry
After utilities we turned our attention
to industry participants. The findings
for these compliance entities indicate
that many have a short-term time
horizon when deciding to get active
in the market. Almost one third of the
67 respondents answered that they
looked only one year ahead when
making EU ETS related trading decisions. The options two, three, four
and more than four years ahead each
received around 10% (Fig. 4.7).
We further asked how much inventory
industry respondents have on their
accounts compared to their annual
allocation. One third of the 65 respondents did not want to reveal that
figure. Just short of 30% claim to keep
one year’s worth of allowances (in
principle enough to cover one year’s
needs). Some 18 % keep only for six
months or less. The remaining 20%
are split between 18 and 24 or more
months (Fig. 4.8).
Industrials were asked how flexible
they are to adjust to changing market
conditions. It looks as if the majority of
the 67 industrial respondents are able
to adjust trading strategy at least on a
quarterly basis. Some 18 % are able to
react on daily developments, while 6
% can only adjust once a year.
Every year around 28 February the
market tends to await nervously the
arrival of free allocation. Traders often
anticipate a bearish price reaction in
case industrials receiving free allocation want to offload these EUAs
on the market. The answers to our
question highlight that from the 70
respondents only 6% would use the
opportunity to sell EUAs based on the
annual allocation, while 59% do not
sell, with a relatively large number of
respondents (36%) not revealing their
strategy (Fig. 4.9).
6 May 2016
2014
2015 (N=74)
Yes
No
2016 (N=73)
Don’t know/cannot answer
Source: Thomson Reuters Carbon Market Survey 2016
Figure 4.7. Selling horizon
”How far ahead do you look when deciding your strategy for selling/keeping/buying
EUAs?” N=67
30%
27%
10%
1 year ahead
2 y ahead
12%
12%
9%
3 y ahead
4 y ahead
More than 4
Don't
years
know/can't
say
Source: Thomson Reuters Carbon Market Survey 2016
Figure 4.8. Carbon inventory horizon
“How much inventory do you normally hold compared to your annual allocation?” N=65.
32%
29%
18%
9%
6 months or less
12 m
18 m
11%
24 m or more
Don't
know/can't say
Source: Thomson Reuters Carbon Market Survey 2016
16
carbon market survey 2016
Timid trading in Q3
We asked industrial participants
when, over the course of the year, they
sell the most. The answers reveal a
tendency to sell more of the annual
volume in the first and fourth quarter,
while the third quarter tends to see
the smallest volumes coming to market from industrial accounts.
Respondents see EUA price levels
as well as the need of income for the
company’s cash-flow as the most
important drivers (50% and 45%
respectively). Some 20% state that
they diversify the price risk by selling
a fixed amount of EUAs per defined
timeframe, while others indicate that a
production stop might cause sales.
With regard to the carbon leakage
debate we wanted industry companies
to indicate at what EUA price level
their production becomes unprofitable
in Europe. The answers range from
€5/t to €50/t and more, with no clear
trend. In combination with the high
number of “don’t know” replies (more
than 50%) we can conclude that the
pain-level differs largely from sector
to sector.
Figure 4.9. Annual allocation and selling
”Does the reception of annual allocation in February every year trigger you to sell
EUAs?” N=70.
6%
36%
59%
Yes
Don't know/cannot say
No
Source: Thomson Reuters Carbon Market Survey 2016
In light of the current EU ETS review
process stakeholders debate the best
way of allocating free allowances to
compliance operators. In the impact
assessment by the European Commission carbon cost pass-through rates
have been mentioned as a potential
differentiator. We asked our survey
participants what cost level of freely
allocated EUAs they pass on to their
customers. The median answer was
22%, aggregated from 38 answers.
6 May 2016
17
carbon market survey 2016
5.North America
This section covers responses to our
survey specific to the Western Climate
Initiative (WCI) and Regional Greenhouse Gas Initiative (RGGI) as well
as expectations regarding the EPA’s
Clean Power Plan.
Figure 5.1. WCI expansion
”Ontario is set to join Qubec and California in WCI. Do you expect other Canadian
provinces or US states to join the WCI?” N=107.
7%
12%
WCI
One issue addressed in the survey is
whether respondents expect other
Canadian provinces to follow Ontario’s
lead and join the WCI alongside Quebec and California (Fig. 5.1). Among
the 107 who answered this question
some 64 % expect more provinces to
join by 2020. Although, this survey
was conducted prior to Manitoba’s
provincial elections, the results of
which indicate that the province will
abandon its plans to join the WCI and
instead adopt other climate change
policy measures. This is because the
New Democratic Party (NDP), which is
favourable to cap-and-trade, lost the
election to the Progressive Conservatives, which opposes it.
Even though the survey question
regarding the expansion of the WCI
before 2020 is somewhat outdated
because of Manitoba’s election results,
one interesting takeaway is that 18%
of respondents expect other jurisdictions to join the WCI after 2020. This
suggests the market expects the WCI
to expand in short- to medium-term,
as well as over the long-term.
18%
64%
Yes, by 2020
Yes, after 2020
No opinion
No one else likely to join
Source: Thomson Reuters Carbon Market Survey 2016
Figure 5.2. Drivers of trading
“In your opinion, what will dominate secondary WCI allowance trading this year?”
N=107.
3%
15%
Compliance trading
30%
Speculative trading
Both compliance and
speculative
11%
41%
Will be little or no
secondary
trading in 2016
Other
Source: Thomson Reuters Carbon Market Survey 2016
drivers of trading
An overwhelming majority of survey
respondents expect compliance trading, speculative trading, or a combination of both to dominate secondary
trading in 2016. This might suggest
that market participants will procure
allowances in the secondary market
more than at quarterly auctions.
to increase in 2016, 16 % of respondents expect little to no secondary
allowance trading in 2016. This could
be attributed to expectations that
market participants will opt to procure
the majority of allowances at quarterly
auctions (primary trading) and avoid
secondary market trading altogether.
Some 30% expect compliance entities
will dominate secondary trading (Fig.
5.2). This comes to no surprise given
the thin margins the WCI market offers speculators to capture. Despite
this, some 12% of respondents still expect speculators to dominate secondary trading. Even though the amount
of allowances in circulation is poised
Figure 5.3 shows company preparations for WCI compliance. Given that
a full 30% of compliance respondents
(three of ten) replied in a preceding
question that they do not even have a
compliance obligation in the second
compliance period, it is no surprise
that 43% went on to say that they
either haven’t started preparing to
6 May 2016
meet compliance or they don’t know
what their company is doing to comply
with the WCI program – an indication
that there could be confusion among
respondents about whether or not
their company is even subject to WCI
compliance. The reason why offset
credit procurement is favoured among
respondents relative to reducing
emissions internally is because using
offsets to meet compliance is almost
always more cost-effective (cheaper)
than reducing emissions internally.
RGGI
Most survey respondents do not expect New Jersey to rejoin RGGI in the
next two years (Fig. 5.4), though only
18
carbon market survey 2016
by 2 percentage points (36% vs. 34%).
The remaining 30% offered no opinion
on the matter. Current Governor Chris
Christie is leaving office by the end of
2017 so that opens the door for the
state to rejoin RGGI provided a Democrat is elected to the Governor’s office
or a Republican that is willing to work
with Democrats on reinstating RGGI
as part of the state’s overall climate
change policy. State lawmakers have
continuously introduced and passed
legislation for the state to rejoin RGGI
and they will likely continue to do so
after Gov. Christie leaves office.
Federal climate policy
In the survey we also asked respondents what their expectations about
the impact that the recent Supreme
Court ruling has on state plans to prepare to comply with the EPA’s Clean
Power Plan (CPP). The Supreme Court
recently issued a stay on states’ implementation of the CPP, meaning that
the federal government does not have
the legal standing to coerce states to
prepare for CPP compliance.
Interestingly, most respondents (48%)
noted that they think implementation
of CPP will resume anyway (Fig. 5.5).
Some 36% of respondents replied
that implementation could ‘maybe’
continue despite the Supreme Court’s
decision. Only 7% replied that they
think the court’s decision will stop
state implementation of the CPP –
this response indicates that there is
a high degree of optimism regarding
state implementation of the CPP.
Figure 5.3. Compliance strategy
”What is your company doing to comply with the WCI program?” N=14.
21%
43%
Don't know/ haven't
started preparing
Investing in
projects/buying offset
credits
Reducing our own
emissions
36%
Source: Thomson Reuters Carbon Market Survey 2016
Figure 5.4. Will New Jersey rejoin RGGI?
”Do you think New Jersey will rejoin RGGI within the next two years?” N=77.
30%
34%
36%
Yes
No
No opinion
Source: Thomson Reuters Carbon Market Survey 2016
Figure 5.5. Legal challenge of Clean Power Plan
”Do you think the implementation of the Clean Power Plan will continue despite
the recent Supreme Court ruling in favour of the states resisting implementation?”
N=103.
9%
7%
48%
36%
Yes
Maybe
No
No opinion
Source: Thomson Reuters Carbon Market Survey 2016
6 May 2016
19
carbon market survey 2016
6.China
China has pledged to reach its
emissions peak around 2030 in its
contributions to Paris Agreement.
Meanwhile it is reported by some
international observers that the
country’s emissions may have ready
peaked in 2015 with drop in coal use
and sluggish industrial outputs. This
statement was rebutted by Chinese officials, though the country has not yet
released emission data for 2015.
Against this backdrop, we asked
relevant respondents to estimate
emissions peak year of China. To our
surprise, only 14 % of the participants
expect China’s carbon emissions to
peak by 2020 (Fig. 6.1). The most
popular answer is the range 20262030. Judging from the survey, it
seems the slower economy growth
and recent climate change progress
have not altered public consensus of
the country’s emission path.
Meanwhile, confidence is growing that
a national Chinese carbon market
will start. In last year’s survey a few
respondents believed this would never
see the day, but it now goes without
question that a nationwide carbon
market will emerge in the near future.
During the last 12 months, Chinese
officials have re-iterated 2017 as the
start date of the Chinese national
scheme.
delay expected
Still, over two-thirds of the participants expected the much-publicized
schedule to be delayed (Fig. 6.2).
There is a clear discrepancy between the official announced target
and market reception, and for good
reason. The carbon regulation has
seen little progress; in fact the latest
announcement from the State Council
indicated that the carbon law would
very likely not be released this year.
In the absence of final legislation, the
progress of market setup is feared
to be hindered by local interests and
industrial lobbying.
Uncertainties also abound over the
fate of the seven pilot trading schemes
that have been running over the last
6 May 2016
Figure 6.1. Chinese emission peak expected next decade
“As part of the Paris Agreement China has pledged to peak emissions by 2030 at the
latest. When do you think the peak will actually occur?” N=69.
9%
6%
Emissions have
already peaked
14%
Before 2020
14%
2020 to 2025
2026 to 2030
After 2030
25%
No opinion
32%
Source: Thomson Reuters Carbon Market Survey 2016
Figure 6.2. National ETS expected - but not on schedule
“The Chinese government is preparing a nation-wide emission trading scheme.
When do you think the scheme will become operational?” N=72.
7%
7%
31%
2017 (official schedule)
2018
2019-2020
Later
33%
No opinion
22%
Source: Thomson Reuters Carbon Market Survey 2016
Figure 6.3. Pilot schemes expected to continue
“Will the existing seven pilot schemes continue once the national market becomes
operational?” N=73.
15%
25%
No, pilots will cease to
exist
Some pilots will continue,
for sectors not included
in the national scheme
16%
All pilots will continue,
for sectors not included
in the national scheme
No opinion
44%
Source: Thomson Reuters Carbon Market Survey 2016
20
carbon market survey 2016
few years. According to the official
announcement, the national scheme
will cover 8 sectors. It means some
companies covered under the pilots
may not be included in the national
scheme. This can explain results of the
next question. When asked about the
fate of the current seven pilot schemes
once the national scheme is up and
running, most believed that the pilots
will continue to cover companies not
covered under the national scheme
(Fig. 6.3).
Whether pilots will continue or cease
to exist, the market is concerned about
the value of unused pilot allowances
in the national scheme. Fig 6.4 shows
that a majority expects the allowances
will be converted into national units,
but only 14% believe this swapping
will be done on a basis of 1 to 1. Some
16% believe the pilot allowances will
be inconvertible, while 23% have no
opinion.
Among all the uncertainties and
speculations about the upcoming
national scheme, one thing is clear:
offset demand will jump as the
potential buyers will be multipled in
the national scheme. Fig 6.5 shows
market confidence in CCERs. Similar
to the result of last year, most of the
respondents expected credit issuance
will rise slowly going forward. We
think both the segmented pilot markets and the ongoing uncertainties of
rules change have prevented market
participants to be more optimistic.
6 May 2016
Figure 6.4. Pilot allowance units in the national scheme
“The existing pilot schemes each use their own allowance units (noninterchangeable). The national system will most likely create a new common unit.
What do you think will happen to the existing pilot units?” N=73.
14%
23%
Converted into national
units on a 1 to 1 basis
Converted into national
units using a different
calculation
Will likely be inconvertible
(can only be used locally
or become worthless)
16%
47%
No opinion
Source: Thomson Reuters Carbon Market Survey 2016
Figure 6.5. Cautiously optimistic offset market
”How do you expect monthly issuance of CCERs to develop in 2016 and 2017?” N=72
for 2016. *In the 2015 survey, we did not include “Decrease” as an option.
11%
30%
29%
Decrease*
Remain at current level
57%
47%
Slow but steady rise
Pick up significantly
13%
13%
2015 (N=55*)
2016 (N=72)
Source: Thomson Reuters Carbon Market Survey 2016
21
carbon market survey 2016
7.South Korea
Just short of 40 participants answered
the general questions on the Korean
Emission Trading Scheme (KETS). The
in-depth questions aimed at Korean
compliance entities garnered only 4
to 5 responses, in other words insufficient for statistical analysis.
Respondents were first asked whether
they expect the allocation for the
period 2015-2017 to be sufficient.
Their views are distributed relatively
evenly between the two options ‘both
power and industry will have enough
KAUs’ and ‘overall insufficient’ (Fig.
7.1). The share of those who ticked the
option ‘overall sufficient but power will
be short’ was smaller than what we
observed in last year’s survey.
They were also invited to share their
views on how much Korean allowance
units (KAUs) are likely to be traded in
2016, what prices they expect to see
and whether they believe the KETS
will actually lead to emission reductions.
In 2015, the first year of KETS, only
321,380 KAUs traded on KRX. From 1
January to 18 April 2016, some 111,400
KAUs changed hands in the Korean
spot market (on KRX). Respondents
expect the traded volumes to remain
modest throughout the rest of this
year (Fig. 7.2). Some 32% believe the
2016 volume will be between 300,000
KAUs and 1 million KAUs. Only 5%
expect more than 5 million KAUs to be
traded this year.
With regards to price expectations,
38% expect the average price in 2016
to be in the range 10,000 – 20,000
KRW in 2016 (Fig. 7.3). No one expect
prices to climb above 30,000 KRW.
Close to half of the respondents signal
no opinion, indicating that they either
a) are not active in trading or b) simply
find it impossible to predict prices.
Currently (since 15 March 2016), the
KAU price at KRX has remained flat at
18,450 KRW.
No opinion
The high number of respondents
showing no opinion on the trading volume and prices show that
with only one year of experience the
Korean carbon market is still far from
6 May 2016
Figure 7.1. Allocation sufficiency
“Do you expect the 2015-2017 allocation to be sufficient to cover the companies’
emissions?” N=39
Overall sufficient, but
power sector will be
short
15%
28%
Both power and industry
will have enough KAUs
No opinion
31%
Overall insufficient
26%
Source: Thomson Reuters Carbon Market Survey 2016
Figure 7.2. Expected trading volume in 2016
”How much trading of Korean allowances (KAUs) do you think will take place in
2016?” N=38
8%
Less than 300,000
allowances
Between 300,000 and 1 m
42%
32%
Between 1 and 5 m
More than 5 m
No opinion
5%
13%
Source: Thomson Reuters Carbon Market Survey 2016
Figure 7.3. KAUs price expectations
”What do you think will be the average price for KAUs in 2016 ?” N=39
No opinion
₩20,000 to ₩30,000 ($20-30)
₩10,000 to ₩20,000 ($10-20)
Less than ₩10,000 (approx $10)
0%
20%
40%
60%
Source: Thomson Reuters Carbon Market Survey 2016
22
carbon market survey 2016
reaching maturity. Yet, almost half of
the respondents believe KETS has a
positive effect on emission reductions.
This puts South Korea more in line
with the perception in Europe, than in
the North American emission trading
schemes.
We asked respondents what level of
emissions they would expect in 2020
in the absence of specific abatement
measures (a business-as-usual scenario). This is potentially important,
as the emission cap under KETS is not
defined as an absolute target, but as
a portion of projected BAU emissions.
The current government forecast sets
economy wide 2020 BAU emissions at
776 Mt, giving a target for the sectors
covered by KETS at 573 Mt in 2015,
562 Mt in 2016, and 551 Mt in 2017. If
the Government were to revise its BAU
projection upwards, the KETS target
would also increase (become easier to
reach).
One in three expects 2020 emissions
to be around the level foreseen by
the Government. Some 16% believe
2020 emissions will be less than 750
Mt (if so, the Government forecast will
be proven too high/the KETS cap too
lenient). Some 18% expect emissions
above 800 Mt (if so, the Government
forecast will be proven too low/ the
KETS cap too tight.
The respondents were also asked
whether the business-as-usual (BAU)
forecast will be changed in 2017 for
the next trading period starting from
2018 (Fig. 7.4). Most respondents
ticked either “no opinion” or “maybe”,
a clear indication that this hypothetical question goes beyond their
involvement in the KETS.
The same can be said about expectations for a possible upwards readjustment of the planned allocation (Fig.
7.5). A full 58% voice no opinion on
this, 26% believe this will occur in
2018 or later, and only 5% expect it
to happen within the current trading
period that ends in 2017.
Only very few respondents expect to
see KETS linking up with other carbon
markets in the coming years, but many
do believe this will happen eventually
after 2020 (Fig. 7.6). The upcoming
Chinese ETS and (the existing) EU ETS
are seen as the most likely candidates.
6 May 2016
Figure 7.4. Change of BAU forecast in 2017?
”Do you think the government will change its business-as-usual emission forecast in
2017, before the start of the second compliance period (2018)?” N=38
8%
13%
Yes
No
Maybe/no opinion
79%
Source: Thomson Reuters Carbon Market Survey 2016
Figure 7.5. Upward adjustment of allocation?
”Independently of whether the BAU projection is changed or not, do you expect the
planned allocation to be adjusted upwards?” N=38
11%
5%
No
Yes, taking effect already
in 2017
26%
58%
Yes, taking effect in 2018
or later
Don't know
Source: Thomson Reuters Carbon Market Survey 2016
Figure 7.6. Linking to other carbon markets
”Do you expect the Korean ETS to link up with other carbon markets?”
Planned Chinese ETS (N=25)
EU ETS (N=22)
New Zealand ETS (N=19)
WCI (Calif.-Quebec) (N=17)
Others (VCS, GS, ...) (N=5)
0%
20%
Before 2020
40%
2020 or later
60%
80%
100%
Never
Source: Thomson Reuters Carbon Market Survey 2016
23
carbon market survey 2016
8.CDM
After years of falling demand and
plummeting prices, one could expect
to see market participants leave the
CDM, and we have indeed witnessed
a small exodus of western verification companies from the once lucrative Chinese market. Furthermore,
most trading houses have scaled
down CER transactions significantly.
Yet the Carbon Market Survey shows
that there are still more than a few
carbon stakeholders with an interest
in CDM. A total of 273 respondents
ticked interest in CDM. As can be seen
in Figure 8.1 they represent many
different roles, such as project developers, administration, traders and
compliance companies (those who are
subject to a cap-and-trade system).
Over the last few years, one of the
key goals of the CDM governing
body – the CDM Executive Board
(the CDM EB) has been to amend the
mechanism in a way to make it more
attractive for potential buyers, going
outside of the regulated market and
reaching to the voluntary buyers or
buyers in the emerging domestic trading schemes. We therefore focused the
CER section on the topic of new demand, to get market players’ opinions
on this important aspect.
Little appetite in europe
Historically the EU ETS has been by far
the dominant taker of CERs, but this
is no longer the case due to qualitative and quantitative restrictions put in
place in 2013. Some European governments, most notably Norway and Germany, showed considerable interest in
CERs last year, especially supporting
the most vulnerable projects. At the
same time, the World Bank held its
first CERs auction last year, preparing
for a new one in May 2016. Australian
landfill owners purchased 22 million
units in 2015 and surrendered them to
the government who will use them to
meet the country’s Kyoto targets.
A particular goal for our survey was
to map stakeholders’ views on the
future demand from various groups of
potential CER buyers up to 2020. We
find that expectations are fairly mixed,
6 May 2016
Figure 8.1. CDM respondents by role
273 respondents ticked interest in CDM and were taken to this section in the
questionnaire. This table shows breakdown by chosen role.
Project developer
62
Other services
45
Technical consultancy
26
Government/administration
22
Carbon trader
22
University
20
Compliance company
16
Lobby/NGO
12
International organisation
12
Trading services
9
Financial services
8
Trader in other commodities
Legal services
Other
7
4
8
Source: Thomson Reuters Carbon Market Survey 2016
Figure 8.2. CDM demand expectations
“How do you see annual demand from CER buyers up to 2020?”. N varies from 19 to
200. N relates to the number of respondents sharing their view on demand from the
different groups (does not indicate belonging to groups).
From other buyers
(N=19)
Australian landfill
owners (N=170)
World Bank/internatl
insttions (N=196)
EU ETS compliance
companies (N=200)
European
governments (N=199)
0%
20%
Less than in 2015
40%
About same level
60%
80%
100%
More than in 2015
Source: Thomson Reuters Carbon Market Survey 2016
although the respondents who foresee
falling demand clearly outnumber
those who expect it to rise. The exception is for World Bank demand, where
72 out of 196 respondents believe
demand will rise, against 45 who think
it will drop (Fig. 8.2).
New sources of demand?
We also asked respondents their opinion about possible new sources of demand between now and 2020; some
208 ticked one or more of the options.
Voluntary buyers and international
aviation drew the highest scores (139
and 133), followed by international
shipping at 90 (Fig. 8.3).
Shipping and aviation are exempt
from the Paris Agreement, and the
responsibility for cutting emissions
from these sectors lies upon the
International Maritime Organization
(IMO) and the International Civil Aviation Organization (ICAO). While ICAO
is largely expected to decide on some
kind of market-based measures that
will allow the use of emission offsets,
(potentially including CERs), IMO has
fallen under criticism for failing to
24
carbon market survey 2016
propose an emissions reduction target
for the shipping industry.
Up to now, close to 10 million CERs
have been voluntarily cancelled form
the CDM Registry. Some part of them
has been used for voluntary offsetting purposes, while major part of the
cancelled CERs target Korean domestic market.
Figure 8.3. New sources of demand
”What do you see as potentially important sources of demand for CERs between now
and 2020?” (N=208)
Vountary markets
139
International
aviation
133
Hope in Paris?
Delving deeper into demand expectations, we asked respondents
about more distant perspectives and
potential use of CERs and new credit’
types (ITMOs) as a way for countries
to achieve their commitments in the
period up to 2030 under the Paris
Agreement. This question offered the
possibility to tick several options, and
we see that a major part (152 of 217)
considers EU as a potential offsets
user (Fig. 8.4). Next on the list are
Japan and Switzerland.
According to the submitted Internal
Nationally Determined Contributions
(INDC) only the following countries
have indicated they will/might use
international market mechanisms to
meet their climate targets: Canada,
Japan, New Zealand, South Korea,
Switzerland and possibly Norway. So,
under current conditions potential
offsets buyers will be limited to five or
six countries. That number could increase through the review of countries
climate ambitions, as some might opt
to use international offset to up their
targets. It is worth mentioning that
similar to last year’s survey, a significant number of respondents keep
considering EU countries as potential
offsets users after 2020, although
their INDCs clearly rule out this possibility.
Over the last year, CERs issuance
volumes remained low with some 9
million units brought to market per
month on average. The price per tonne
worth of CERs was down to 40 eurocents, equal to the average issuance
cost. Figure 8.5 shows respondents’
replies on the approximate verification cost in 2015. About 30% of our
respondents paid below 20 eurocents
for verification services (on average),
and a similar number paid between
20 and 40 eurocents. The rest were
6 May 2016
International
shipping
90
Other
12
Source: Thomson Reuters Carbon Market Survey 2016
Figure 8.4. Credit use for Paris commitments
“Which countries/regions do you think will use international emission offset credits
such as CERs or ITMOs as a way to achieve their international climate commitments
in the period up to 2030 under the Paris Agreement?” (217 respondents for a total of
802 entries).
EU
152
Japan
128
Switzerland
100
South Korea
94
Canada
91
China
83
U.S. (federal)
77
Mexico
Other
57
20
Source: Thomson Reuters Carbon Market Survey 2016
Figure 8.5. Verification cost
“What was the approximate verification cost per CER in the projects you have been
directly involved in in 2015? This includes payment for monitoring reports and fees
to Designated Operational Entites (DOEs). Does not include issuance fees to the UN
administration.” (N=52).
19%
More than 60 eurocent
31%
19%
Between 40 and 60 eurocent
Between 20 and 40 eurocent
Less than 20 eurocent
31%
Source: Thomson Reuters Carbon Market Survey 2016
25
carbon market survey 2016
evenly split between the range 40 to
60 eurocents and above 60 eurocents.
The upper ranges are significantly
higher than the average price fetched
in the market. This seems to imply
that some project developers have
sold at loss, and we certainly assume
that the unfavourable margin has
discouraged many project hosts from
starting the process of requesting CER
issuance.
Figure 8.6. De-registering CDM
“Do you consider re-classifying CDM projects in the years 2016-2017? (By this we
mean re-register the project as another type of instrument).” (N=53).
11%
Yes, to issue credits
for local emission
trading systems
28%
30%
switching standards
As a result of the low demand, a number of project owners are considering
re-classifying their projects, i.e. to
re-register or incorporate them under
another type of mechanism. Figure
8.6 shows that 30% of respondents
would be willing to incorporate their
CDM projects into some national
(non-trading) initiative, e.g. a “nationally appropriate mitigation action”
(NAMA). In comparison, last year only
13% of our respondents were ready for
such re-classification.
Yes, to incorporate
into a national
initiative
No
30%
Don't know/Other
Source: Thomson Reuters Carbon Market Survey 2016
Some 11% signal interest in supplying their credits for use in the local
trading schemes, which is a significant
decrease compared to 32% in last year
survey. As China is expected to tighten
its local offset eligibilities, we believe
Chinese CDM projects will not be able
to switch to CCER. At the same time,
the number of CERs cancelled for
Korean ETS is growing constantly, due
to the lack of domestically developed
projects.
Some 28% did not share an opinion
on this question, and finally, 30%
of the respondents continue to be
devoted to CDM, almost the same
rate as last year. That a relatively high
percentage of the respondents are unwilling to abandon CDM may indicate
that some project hosts still haven’t
lost hope finding new demand sources
for their credits, such as for example
aircraft operators under the emerging
ICAO MBM scheme.
6 May 2016
26
carbon market survey 2016
9.Aviation
Aviation emissions appear for the
first time as a separate section in this
year’s edition of the Carbon Market
Survey (we included some questions
on aviation in the European section
in 2012 and 2013 when the European
Union was encountering strong international opposition to its attempts to
makes airlines account for all emissions taking place in European airspace). We dedicate more space to the
sector this year, because of important
ongoing and upcoming events. Close
to 60 respondents answered one or
more questions in this section.
Figure 9.1. Decision to curb aviation emissions?
On the agenda for the ICAO assembly thus autumn is a proposal to curb emissions at
2020 level, and start reducing them in 2050. What decision do you expect from the
upcoming assembly? (N=59).
Don't know/other
Decision to be further
delayed
18%
34%
Decision calling for
aviation emissions to
peak in 2020
20%
Statement in support of
emission mitigation, but
without firm obligations
or a fixed timeline
27%
Background
Following a resolution adopted at
its 38th assembly in 2013, the International Civil Aviation Organization
(ICAO) is working on a series of actions
aimed to address the sector’s emissions of greenhouse gases. The organization gathers experts and governments officials from most countries,
to regulate international aviation. A
basket of possible actions has been
proposed to curb the rapidly growing
emissions from commercial airlines,
including technological, operational
and market-based measures (MBM).
Last March, just before a round of
so-called Global Aviation Dialogues,
ICAO presented a revised draft proposal on MBM that contains detailed
information on terms and conditions
of participation. However, several
influential emerging economies have
voiced strong concern that the draft
still contains provisions running
counter to their growth strategies.
We therefore expect it to be amended
further before a final version can be
approved. As the survey responses
show, many market players do indeed
expect provisions to be “watered
down”, weakening the obligations for
aircraft operators.
Findings
In the survey we asked our respondents if they consider it likely that the
upcoming ICAO Assembly (September
– October 2016) will agree on a resolution to implement MBMs from 2020.
6 May 2016
Source: Thomson Reuters Carbon Market Survey 2016
Figure 9.2. Eligible credits
”If ICAO agrees on a Market Based Measure, what kind(s) of credits do you think will
be eligible?” N=55, for a total 143 entries (41 of the 55 think CERs will be eligible).
75%
CERs
55%
Voluntary credit units
53%
Paris Agreement units (ITMOs)
38%
REDD units
20%
Domestic units (China and SK)
Japanese bilateral scheme units
18%
2%
Others
0%
10%
20% 30% 40% 50% 60% 70% 80%
Source: Thomson Reuters Carbon Market Survey 2016
One third expects that there will be
a statement in support of emission
mitigation, but without firm obligations or a fixed timeline (Fig. 9.1).
Some 27% think there will be a decision calling for aviation emissions to
peak in 2020, meaning that airlines,
aircraft manufacturers, airports and
other stakeholders would have to start
preparing for emissions to stay flat or
drop from 2020 onwards. One in five
respondents believes the decision will
be delayed altogether.
The draft proposal envisages MBM
to build on a number of offsetting
mechanisms, some existing and some
yet to emerge. We expect more clarity
on eligible standards may come during mid-May negotiations on MBM.
Although, according to the current
timeline, the final definition of Emissions Unit Criteria (EUC) will not be
decided before 2018.
eligibility
We asked stakeholders which standards they think will be eligible to supply offsets under the MBM (they could
tick more than one option). Three out
of four expect the final framework to
accept CERs (Fig. 9.2), well ahead of
voluntary credit units and new credits
under the Paris Agreement (55% and
53% respectively). Some 38% think
REDD units will be eligible.
27
carbon market survey 2016
In the CDM market some project
types have been seen as controversial
because their climate impact is said to
be non-existing or very modest. Some
methodologies have been banned
from use in the EU ETS. We therefore asked respondents whether they
expect to see similar restrictions in a
MBM for aviation. It turned out that
over 60% believe HFC23 and adipic
acid projects will be excluded (Fig.
9.3). Some 50% and 48% believe that
credit units stemming from coal power
plants and large hydropower projects
will be ineligible. And finally, 22%
think that there will be no restrictions.
The draft proposal does not mention
explicitly any particular project type
that will not be welcomed into the
scheme. But since ICAO is to assure
the environmental integrity of the
offsets they will let into the MBM it is
quite likely that some dubious project
types may not be accepted under the
scheme.
Finally we asked about the potential
timelines for when aircraft operator
will start pre-compliance purchases.
Some 38% of the respondents believe
operators could start purchasing
activity by 2020 (Fig. 9.4), some 34%
believe trading would start earlier,
i.e. by 2018. And finally 27% expect
purchasing to start only after the MBM
starts in 2020. As mentioned above,
the rules on unit criteria will most
likely not be finalized before 2018,
meaning operators may prefer to wait
until then.
6 May 2016
Figure 9.3. Project type restrictions
”Do you think ICAO is likely to ban any of the project types below from a Market
Based Measure for aviation?” (N=54, for a total of 99 entries).
HFC and/or adipic acid
61%
Coal power plants
50%
Large hydro
48%
Other
2%
No restrictions
22%
0%
10%
20%
30%
40%
50%
60%
70%
Source: Thomson Reuters Carbon Market Survey 2016
Figure 9.4. Purchasing timeline
”If ICAO agrees this year on a mechanism from 2020, when do you expect airlines to
start buying credits to prepare for compliance?” (N=56).
2%
27%
34%
38%
By 2018
2019 to 2020
After 2020
No opinion
Source: Thomson Reuters Carbon Market Survey 2016
28
carbon market survey 2016
Appendix: Methodological considerations
The Carbon Market Survey is the most
encompassing market sentiment poll
in its field, and has come to be seen
as a reference in the world of carbon.
Nevertheless, like all surveys, it needs
to be read with certain caveats.
The most general methodological
challenges are the risk of ambiguity
(does the respondents understand the
question the same way as us?) and
bias (can the question or the response
options appear leading and/or onesided?). We have been conscious of
this since we launched the first survey
in 2006, and we strive to phrase each
question in a precise and neutral
way. If you would like to consult the
full questionnaire, please see contact
details overleaf.
Some companies are naturally reluctant to touch on business sensitive
areas such as threshold prices for buying/selling and holdings of allowances
units. This is perfectly normal and
does not change much from year to
year. In most such cases we provide an
option “Don’t know/cannot answer”.
6 May 2016
Potentially more challenging are the
questions of price expectations. Many
respondents are themselves market
participants, and as such they might
have an interest in influencing other
traders’ behaviour by giving a very
high or a very low estimate. We caution not to take the prices for anything
more than they are: an aggregate
of interested respondents’ (best)
guesses.
An altogether different question is
whether the population of respondents is truly representative of the
global carbon market, both with regard to the geographical scope (where
the respondents are located) and what
kind of role they have.
In terms of respondents’ locations,
the majority lives in Europe and North
America. This is natural given the well
established emission markets in these
parts of the world. Nevertheless we
are glad to see increasing number of
respondents in the emerging markets
of China and South Korea.
In terms of roles, Figure 2.1 shows a
wide range of stakeholders, including
many groups than could at first glance
appear to be peripheral compared
to the three core groups of compliance companies, project developers
and traders. What this figure shows
is the plethora of different services
active in the carbon markets (lenders,
brokers, auditors…) and the presence
of non-commercial stakeholders such
as universities and non-governmental
organisations.
A more practical challenge in a survey
that aims as broadly as ours, is how to
analyse the results in a concise way,
how to get from many fragmentary
bouts of insight to an overall understanding of underlying trends. We
have chosen to tackle this by way of
comparison: by geographical location, by type of stakeholder, and by
comparing to previous years. That is
the advantage of having eleven years
of data.
29
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