London launches its own CO2 market, potential world number one

As a result of Brexit, the United Kingdom has just launched its own CO2 market last week when it was previously integrated into the European market.

If it is for the moment almost ten times smaller than the latter, it could quickly become one of the very first in the world, and one of the most monitored tools in the fight against global warming.

This is evidenced by a high launch price around 50 pounds per tonne of CO2, a little bit above the European price.By comparison, the ton of CO2 on the Californian market, the third world market behind that of South Korea, is around 20 dollars.

The higher price in British and European exchanges shows that "the United Kingdom and the European Union are at the forefront of climate action", estimates Adam Berman, of the International Association of Trade Marketsof CO2, the ieta.

As the CO2 emissions reduction objectives are strengthened, the number of rights to be polluted available and prices should mount.

Towards carbon neutrality in 2050

London targets carbon neutrality for 2050 and a 78% reduction in polluting emissions by 2035 compared to the 1990 levels.

According to experts, these carbon exchange markets are one of the angular stones of the ecological transition."This is the most important tool for cutting emissions in energy and heavy industries" or aviation, notes Tim Atkinson, director of sales and brokerage at CF Partners.

He notably underlines that if the coal is almost out of the energy "mix" in the United Kingdom, it is largely thanks to the CO2 quotas which made electricity production too much through this.

Other tools, such as subsidies, have also largely fueled the boom in wind energy in the country.

For the British authorities, getting out of the European carbon market facilitates the surveillance of businesses and activity, in comparison with the 27 member states of the vast European CO2 market, which at its beginnings had been the subject of massive fraudto VAT.

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Puzzle for European companies

The launch of a separate British market, however, complicates the situation for companies that have a foot in both areas."You now have two separate procedures to manage, it's more expensive," notes Mark Lewis, BNP Paribas strategist.

In addition, the slightly higher price of the ton of CO2 on the British market compared to the European tends to disadvantage companies in the United Kingdom.

Especially since they are already evolving in a disadvantaged environment since most countries have no CO2 market, and therefore no carbon price for their businesses, including the most polluting like the United States, which n'have no federal market, or China.

"Many European industries" such as metallurgy "have largely left Europe because they had to bear a lot of the burden" of CO2 prices compared to their rivals.

First but small carbon market in China

China is however in the process of having a CO2 market certainly limited to thermal power plants but which, given the size of the largest polluter in the world, is able to change the situation.

Louis Redshaw does not however see for tomorrow the prospect of a unique carbon price worldwide.

Another limit of carbon markets in the energy transition: "They do not cover 60% of the economy" and ignore for example agriculture, argues Louis Redshaw.

Some analysts claim that it is difficult to measure field pollution when you can more easily quantify the emissions of a thermal power station.

Mark Lewis objects that certain sectors are too politically sensitive, such as agriculture.Mr. Redshaw recalls that if global warming is slow enough, "we will have many other problems than paying a CO2 price".