With asset owners calling for an overhaul of carbon pricing, and developments from policymakers deemed too slow to align with limiting global warming to 1.5°C, this year’s climate conference of parties presents an opportunity for progress.
Speaking with ESG Clarity after a panel on carbon pricing and building net-zero portfolios at Guernsey Sustainable Finance Week, Catharina Hillenbrand Von Der Neyen, head of research at Carbon Tracker, outlines the trajectory of carbon pricing and how investors can bring companies along the net-zero journey.
What is going on with carbon pricing?
There are some trends where you are seeing governments looking to provide support, to top it up for what they see as a sustainable decarbonisation level, particularly for hard to abate industries.
We are looking around the €100 level, but also the trajectory for the moment seems to be one of differentiation by industry. Some have more time to adapt and get themselves ready until viable technologies become available.
There are some issues around transparency – companies need carbon pricing and investors need companies to understand and then pressure them for what they do in their decarbonisation capex plans.
What’s preventing this transparency?
At the moment, you have a very volatile price and it’s a very young market. Therefore it’s hard to predict. You have government intervention – the EU Commission or others can regulate supply and demand so they have a strong handle on the pricing.
You had the initial hiccups in the first phases where there was over-reporting so there was a big overhang. Times of big overhangs and shortages make for a volatile market, but companies need to be able to project on a longer-term basis for their own planning.
What is the biggest focus for investors in this area?
Where are carbon prices going? What do companies actually put in their budgeting? And planning and their models and their disclosures? Then also looking at the standards and how you can have credible sustainable projects.
Are you expecting this to be a big part of the agenda for COP27 this year?
It’s hard to predict because we’re in a very changed world from last year’s COP. Energy security is clearly a topic for concern so then the question is, how can you make energy security happen with a functioning decarbonisation? And how can that be priced into a market-based regime?
And what do you hope will come out of the discussions in Egypt?
A long-term vision. We’re currently in a lot of volatility and upset, everything’s out of whack. But it’s about one not throwing the baby out with the bathwater and forgetting about transition and decarbonisation. The question is, how can you bring that back on track in such a way that it remains an orderly transition?