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Do carbon markets drive climate change mitigation?

Hæge Fjellheim
Hæge Fjellheim
Director of Carbon Research at Refinitiv

What does the Refinitiv Carbon Market Survey 2021 say about how companies view the impact of carbon markets on climate change?


  1. In a pivotal year for global climate diplomacy leading up to COP26 in November, the Refinitiv Carbon Market Survey 2021 reveals higher price expectations in key markets, a growing perception that cap-and-trade systems deliver emission abatement, and that the cost of CO2 is becoming crucial for investment decisions.
  2. EU ETS prices have climbed 60 percent this year and is trading above €50 per tonne, a level less than a fifth of survey respondents expected for this year and only one third eyes for 2022. Price expectations for China’s national ETS that will launch trading this month are more modest at below €5 over the first trading year.
  3. The voluntary carbon market is seen as the biggest source of demand for carbon offsets, dwarfing the perceived appetite for such credits from governments, emission trading systems and airlines.

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The price of emission allowances in the European Union’s emission trading system (EU ETS) has surged more than 60 percent this year, from €32 to currently around €52. That can mainly be attributed to Europe taking on more ambitious climate goals for 2030.

Europe’s increase comes alongside moves in other key economies: the U.S. has rejoined the Paris Agreement and in April, President Biden pledged to cut emissions by 50-52 percent by 2030; China officially launched its national emission trading system (ETS) in January, and trading is expected to start soon; and the UK also launched its ETS in January, and held its first auction of UK allowances on 19 May.

The Refinitiv survey of market sentiment conducted in March/April reflects a remarkable shift in perceived relevance of carbon markets. A record share of respondents say that the EU ETS plays a role in emission reductions – never before have carbon markets been seen as mattering so much to combating climate change in the 16 years we have conducted this survey.

In the year where countries are expected to bring increased ambition to the table at the international climate summit COP26, our survey suggests that market players place confidence in emissions trading systems as a tool to deliver towards tighter climate goals.

Download the Refinitiv Carbon Market Survey 2021 – Higher carbon price triggers companies to slash emissions

The impact of the EU ETS on carbon markets

After being on a steady rise since 2017, the cost of one emission allowance or EUA is now at record highs above €50 per tonne. This is the result of Europe going for more ambitious climate policy (cutting greenhouse gas output 55 percent below 1990 levels), and it impacts companies’ investment decisions as well as their global competitiveness, according to respondents from affected industries.

“How much of an effect does the ETS have on greenhouse gas reductions?” Record number of respondents say the carbon market causes emissions cuts.

“How much of an effect does the ETS have on greenhouse gas reductions?” Record number of respondents say the carbon market causes emissions cuts. Do carbon markets drive climate change mitigation?

“What drives prices in the EU ETS?” Record number of respondents say policy matters

“What drives prices in the EU ETS?” Record number of respondents say policy matters. Do carbon markets drive climate change mitigation?

A record share of respondents say that policy matters the most. The findings reflect a more bullish carbon market sentiment than one year ago, when the survey was conducted against the backdrop of Europe’s first COVID-19 lockdown and the correlating drop in prices of energy commodities – including carbon. The 2021 Carbon Market Survey reveals higher price expectations in key markets, a growing perception that cap-and-trade systems deliver emission abatement, and that the cost of CO2 is becoming crucial for investment decisions.

Emission allowance prices hit new records

The contrast is stark, with European emission allowance prices leaping from €19 per tonne in last year’s survey timeframe to €40/t during this year’s survey. The views expressed back in March/April, and the developments since then, show just how rapid and steep the price rally is. Prices are currently trading around €50/t, exceeding market expectations. Less than a fifth of respondents expected such levels this year, and one third eyed €50 for 2022.

Our annual survey collects input from a wide range of market participants and observers, and since 2012 we have included a subset of in-depth questions to emitters – the core stakeholders – to understand how they are affected by being subject to an ETS.

A much higher share now say it drives carbon abatement in their company, that it is detrimental to their competitiveness, and that it is a decisive factor for investment decisions. A record-high 63% of polled emitters now consider the EU ETS as a decisive factor for investment decisions. We believe the survey results reflect a much higher cost awareness among European utilities and industries following the last months’ steep rise in the price of emissions allowances, and signals confidence in climate ambition and the emissions trading system as such.

Note that there were over 300 survey respondents overall, with nearly half answering questions specific to the EU ETS but fewer than one-quarter of those being covered emitters.

“To what extent has the EU ETS caused your company to reduce emissions?”

"To what extent has the EU ETS caused your company to reduce emissions?" Do carbon markets drive climate change mitigation?

“How do you perceive the impact of the EU ETS on your competitiveness, compared with other factors?”

China to start trading of emission allowances

Beyond European carbon trading, the survey revealed expectations for a national carbon market in China. The world’s largest emitter has had regional pilot ETSs (currently eight of them) for years, and the long-planned national carbon market has launched this year and will begin trading in June.

As for what that price might be, a weighted average of responses to our survey question about Chinese allowance price ranges ended up at 37.7 CNY (€4.8) over the first trading year, higher than the €4.2 respondents expected in 2020 and much higher than the €1.9 they expected in 2019.

The national ETS covers only the electricity-generators for now but is slated to grow in scope with seven other sectors to be added over the next five years. The Chinese Ministry of Ecology and Environment recently signaled the start of benchmark calculation for the cement sector, indicating that it could be soon be included.

Three quarters of respondents think metals (specifically iron and steel manufacturing) will be added next, possibly reflecting concern about Europe’s proposed Carbon Border Adjustment Mechanism (CBAM) will affect imports of those products to the extent that they are not covered by a carbon price in China.

“Currently, the national ETS covers only the power sector. Other sectors are set to be phased in gradually. Which of the following sectors do you think will be added first?” N=55 for a total of 171 entries

"Currently, the national ETS covers only the power sector. Other sectors are set to be phased in gradually. Which of the following sectors do you think will be added first?"

Overall, 86 of the 303 total survey respondents said they follow/are involved in Chinese emissions trading – this makes China the second biggest response category after Europe, followed by ESG at 80 responses.

Many respondents follow/are involved in more than one market, and that their market involvement does not necessarily coincide with where they are located. Some 159 respondents are based in a European country, but many outside the EU are following the EU ETS and vice-versa.

Questions specific to the two North American carbon markets (the WCI and RGGI) garnered only few responses, mainly on prices (they’re expected to go up) and whether new jurisdictions will be added (most say no).

Responses to questions about South Korea’s national carbon market (the KETS) indicate a bearish price outlook for 2021, with expectations that per tonne prices will stay at their current level of 18,000 won/t (~€13/t). Meanwhile, those for New Zealand’s ET see prices rising into the NZ$40-45/t (~€24-27/t) range.

Voluntary market biggest demand source for carbon offsets

The survey also covered the nascent market for climate offsets to be used by airlines for compliance with the CORSIA programme set up by the International Civil Aviation Organisation to offset increased emissions from international aviation. Most respondents don’t expect there to be enough demand for that market to be “tight” until at least 2024 or later.

The other survey category dealing with offsets is the set of questions on environmental, social, and governance (ESG) factors in companies. This ESG section is relatively new to our survey, which featured questions about voluntary carbon markets for the second time this year.

Over 200 respondents answered our question about measures that. their organisation is taking to reduce its emissions on a voluntary basis – of those, fewer than 50 said purchasing climate offsets is among them.

However, opinions on offsetting in general were largely positive. Nearly 80 percent agreed with the idea that offsetting allows companies that do not emit GHGs to contribute to emission reductions, while nearly 60 percent of the respondent pool disagreed with the notion that offsetting is “pure greenwashing”.

“To what extent do you agree with the following statements on carbon offsetting?” N=193

"To what extent do you agree with the following statements on carbon offsetting? N=193

The survey section on international trading of carbon offsets (including questions about the fate of the UN’s Paris Agreement) reveals that voluntary purchases by companies are expected to be the largest source of demand for carbon offsets in the coming years, ahead of expected demand from emission trading systems and from CORSIA.

Download the Refinitiv Carbon Market Study 2021