Interview
How do carbon markets work?
- To limit global warming to two degrees above pre-industrial levels by 2030, economists project global carbon prices need to reach $50–$100 per tonne, though current and near-future predictions indicate most prices will remain significantly below this threshold.
- A unified global carbon price and economic harmonization are anticipated within the next few years as an aspiration, but fully integrated global markets are considered unlikely in the short term.
- Governments are expected to enforce stricter compliance against market manipulation and obfuscation, with the European Union set to implement a border tax requiring importers to pay carbon costs equivalent to domestic EU production.
- Corporate executives face increasing accountability for emissions, particularly in the EU, while other nations are expected to establish their own carbon markets where profitability appears feasible.
- Without harmonization and active participation from major economies like China, multinational companies may shift production to carbon-intensive regions, potentially undermining global decarbonization efforts.
- If carbon prices remain sufficiently high due to sustained government commitments, greener industrial processes will become more attractive and carbon markets will begin achieving their decarbonization goals.
- A continued dramatic expansion in carbon markets is expected as regulators in various regions adjust mechanisms to ensure effectiveness and drive price increases.