Paris Agreement injects optimism into carbon markets despite falling prices

Thomson Reuters 2016 Point Carbon Market Survey suggests that the Paris Climate Agreement has injected new optimism into the carbon market.

Thomson Reuters 2016 Point Carbon Market Survey, which sought views on current and future carbon dioxide trading worldwide, as well as ongoing negotiations, suggests that the Paris Climate Agreement and the mention of "international transfers of mitigation outcome" (ie, markets) has injected new optimism into the carbon market. Half the respondents (48%) believe that international emission trading will expand and/or link as a result of COP21. One third expect trading to stay at current levels.
Other highlights:
-The optimism contrasts with actual developments after the climate summit in December: starting in January prices have been falling in all major emission markets.
– Since sentiment reached a low ebb in 2013, carbon market attitudes and expectations has inched up every subsequent year:
– A strong belief that cap-and-trade will (continue to) be used as a climate policy instrument in 2020. Some 71% of respondents expect this in their country. 73% expect to see green subsidies, 54% green taxes.
– Cap-and-trade is seen as most cost-effective way to reduce emissions. 51% of European respondents see the EU ETS as the most effective way. Two-thirds expect it will continue to be Europe’s main climate policy instrument.
– Carbon pricing is considered important for investment decisions. One third of European compliance entities (companies whose emissions are capped) see the cost of carbon as a "decisive factor" for investment decisions, while 55% say it is "part of the calculations".
Anders Nordeng, senior carbon analyst at Thomson Reuters and author of the survey, said: "The Paris Agreement does seem to have a clear positive impact on long-term market expectations, despite giving no support for prices so far. This can only mean one of two things; either the support effect is yet to appear, or market stakeholders have succumbed to wishful thinking. I certainly see the latter alternative as the most probable one".