Carbon markets predicted to face short-term price dips


Despite forecasting near-term declines in carbon prices amid political and macroeconomic uncertainty, market participants are optimistic that reforms will push compliance market prices higher in the coming years and the voluntary carbon market will grow to meet increasing demand, according to a new survey.

European respondents expect EU Allowance (EUA) prices to average €84.40 ($90.12) between 2023 and 2025, compared to a current price of €85.50 – a 1.2% decrease in the predicted price to 2025 from last year’s survey. Similarly, the expectation for California carbon allowance (CCA) prices dropped by 10.3% from last year, while expectations for RGA permits in the north-eastern US RGGI (Regional Greenhouse Gas Initiative) market dropped by 18%, for the UK ETS by 7.5% and for New Zealand’s NZU by 12.5%, the poll from the International Emissions Trading Association (IETA) and PwC shows.

Despite the falls in short-term expectations, the survey reflected that carbon market participants believe  prices will be higher from 2026 to 2030, with EUAs forecast to average €100, CCAs $51.54 and RGAs $45.83.

Regulators are also predicted to keep ramping up the ambition of their carbon market pricing systems. Nearly half of the respondents expect the EU to set an emissions reduction target of 75% or more when policymakers begin the task of crafting 2040 emissions reductions goals later this year. Also, more than two-thirds of respondents expect lawmakers in California to extend its carbon market beyond 2030.

There remains some uncertainty over what target RGGI states will set for the market’s next phase. But new markets have also emerged in the past year in Washington state while New York’s governor recently announced the creation of a state-wide cap-and-invest system. Nearly half the respondents expect the New York market to begin by 2025.

The fall in carbon offset price expectations has been more severe, with prices for standardized nature-based global emissions offset (N-GEO) contracts now expected to average $20 between 2023 and 2025, compared to a forecast of $33.36 in last year’s survey. However, 71% of respondents were confident the market will be able to boost supply sufficiently to meet growing demand, compared to 66% in last year’s poll.

Most of those questioned said they plan to use nature-based removal credits in their offsetting strategy, especially afforestation, soil carbon and sequestration, and biochar. About 72% of respondents expect the carbon offset credit to divide into two classes for reduction/avoidance credits and carbon removal credits, with the share of respondents predicting this shift having risen steadily in the last three years.

The annual carbon market prices survey among IETA members has been undertaken by PwC and IETA every year since 2005, the poll of this year carried out in April and receiving responses from 187 members.

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