Global carbon market grew by 20% in 2020

The total value of the global carbon market grew by 20% in 2020, despite the fact that emissions dropped by 7%, according to the annual Refinitiv Carbon Market review. 

Carbon markets aim to reduce greenhouse gas emissions in a cost-effective way by setting limits on emissions and enabling the trading of emission units.

2020 marks the fourth consecutive year of record growth, with the value of the carbon market now worth more than five times more its value in 2017.

According to Refinitiv, the majority of this increase comes from the European Emissions Trading System, which accounted for almost 90% of the value and most of the traded volume in 2020.

Over 8 billion emission allowances changed hands in the European carbon market in 2020, reaching £202bn.

The North American regional carbon markets also followed a similar pattern to Europe, with prices crashing in March/April but recovering in Q4 2020, as policy changes resulted in tighter future carbon market balances.

Hæge Fjellheim, head of carbon research at Refinitiv, said: ‘It might seem counterintuitive that in a year when emissions dropped significantly due to the pandemic, carbon prices and global market value hit new records.

‘Pandemic-induced crash and the ambition-induced boom is our headline explanation. Major carbon markets saw prices and volumes rise on expected tightening of emission caps due to more ambitious climate goals in the future.

‘Expectations of a more ambitious 2030 climate target for Europe was a key supporting factor for carbon over 2020, a year that also put the trading system’s market stability reserve to its first real test.

‘We foresee the trend of high traded values and volumes to continue into 2021, with market players expecting a tightening of the EU ETS required to meet the new 2030 climate target.

‘The Biden presidency undoubtedly brings progress toward increased climate change mitigation, both at the domestic and global level but it will not have an immediate effect on existing carbon markets.’

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