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How will carbon prices save the whales?

Alessandro Sanos, CAIA
Alessandro Sanos, CAIA
Director, Commodities Market Development

While COVID-19 is dominating the news landscape, it should not be forgotten that the biggest threat to humanity is climate change. Alessandro Sanos, Director of Commodities Market Development, outlines how saving the whales can contribute to mitigating climate change, analyzing the economic benefits and the impact on carbon prices.


  1. There is acknowledgement across the globe of the necessity to embrace clean energy technologies and low-carbon solutions to transform the energy sector. In addition, many investors are moving their focus towards sustainable investing and ESG principles.
  2. Recent scientific literature has looked at the ability of nature to store carbon in vegetation, soils, and oceans to mitigate climate change. A white paper by the IMF’s Ralph Chami analyzed the connection between a larger whale population and the consequent impact on carbon prices.
  3. The IMF estimates that the economic value of the world’s total great whale population is US$1 trillion. Stressing the economic benefits of whale conservation will contribute to mitigating climate change in addition to preserving and fostering growth of whale populations.

A few months ago, preventing climate change was one of the key themes that dominated discussions at the World Economic Forum’s annual meeting in Davos. The agenda was rich with sessions on the future of fossil fuels, the global energy challenge, and looking at how decarbonizing shipping could unlock a global energy transition.

There was momentum.

Fast forward to the present, and the COVID-19 crisis has overshadowed any environmental discussions. Governments are rightly focusing their efforts on fighting the pandemic and saving lives.

Read the Global Carbon Market Report 2020, Refinitiv’s annual review of carbon markets that showcases the main trends in global emission trading systems, and areas where such systems are emerging

Sustainable investing and carbon

However, as pointed out by Patricia Espinosa, the UN Climate Change Executive Secretary, we cannot forget that climate change is the biggest long-term threat facing humanity.

Carbon dioxide (CO2) contributes to global warming through the greenhouse effect. When discussing climate change, it is typically accepted that we could achieve a successful transition towards a low-carbon economy if there is robust and close coordination between policy, technology, and capital.

Central policy tools to address climate change include assigning a price to carbon in the form of emissions trading systems or carbon taxes, and providing tax credits and grants to support and stimulate demand of clean energy technologies. In turn, clean energy technologies and low-carbon solutions are an opportunity to support the transformation of the global energy sector.

And finally, there is strong evidence that institutional investors are increasingly interested in aligning their assets and capital allocation to sustainable investing and ESG principles.

Economic value of ecosystems

The three pillars of policy, technology, and capital all contribute to decarbonizing the economy. But given the magnitude of the challenge and the urgency in addressing climate change, it is probably time to recognize that it is taking too long to see the results. We therefore need to add a fourth pillar into the equation, nature’s own ability to capture carbon.

In recent years, there has been a growing body of scientific literature that looks at how nature stores carbon in vegetation, soils, and oceans. But the conservation narrative has not resonated to any great depth with policymakers because it treats the issue as an environmental problem instead of adopting an economic policy perspective.

By focusing on the economic value of nature’s ecosystems, economists play the critical role of encouraging an alternative reflection on the costs of climate change mitigation.

At the Blockchain 4 Impact event at the United Nations in Geneva, I spoke with my co-panelist Ralph Chami, the Assistant Director at the IMF. He was behind the groundbreaking paper on applying macro-economics to the population of whales.

Ralph Chami and Alessadro Sanos at the Blockchain 4 Impact event at the United Nations in Geneva. How will carbon prices save the whale?
Ralph Chami and Alessandro Sanos at the Blockchain 4 Impact event at the United Nations in Geneva

The white paper highlighted the connection between carbon prices and the spillover benefits of an increasing whale population. Ralph’s approach allows governments to compare the immediate cost-free carbon capture potential of whales with other carbon management projects.

How do whales help reduce carbon levels?

Whales collect large quantities of carbon in their bodies.

According to the IMF estimates, on average, great whales sequester 33 tons of CO2 throughout their lifetimes before their carcasses sink to the bottom of the ocean, taking that carbon out of the atmosphere for hundreds of years.

In addition, whales play an important role in increasing the production of phytoplankton, which alone contributes to 50 percent of all oxygen in the atmosphere, and captures as much CO2 as four Amazon rainforests.

Should the current population of great whales be allowed to return to its pre-whaling numbers, the contribution towards the amount of phytoplankton in the oceans would be significant.

The IMF calculated that a 1 percent increase in phytoplankton productivity would result in hundreds of millions of tons of additional CO2 captured each year, equivalent to the sudden appearance of two billion mature trees year after year.

Using the market price of carbon, the scientific estimate of whales’ contribution to carbon sequestration, and the economic value of whales’ positive impact on fisheries and ecotourism, the IMF conservatively estimates that the value of the average great whale is more than US$2 million, or as much as US$1 trillion for the total global population.

ECX EUA December contracts. How will carbon prices save the whales?
ECX EUA December contracts. Source: Eikon

While the IMF analysis has not been published yet in a peer-reviewed scientific paper, determining the monetary value of whales makes a persuasive case for protecting them.

Saving the whales makes economic sense

Policymakers can now compare the return on investment of the ‘no-tech’ whale-protecting strategy, with other complex, untested, and expensive solutions proposed to mitigate global warming.

As the concentration of CO2 in the atmosphere is increasing rapidly, reframing the conservation narrative of whales from one based on emotions, to one that measures the economic value of their contribution to climate change mitigation, is a crucial step forward in their protection.

In all probability, the value of whales will increase over time as the increasing impact of climate change on the global economy will presumably drive the long-term price of carbon higher.

What’s the future for carbon prices?

In the short term, the ripple effect of the COVID-19 crisis and the lockdown measures have impacted the carbon market. Prices of carbon emission allowances (EUAs) initially plummeted in late March, and then rebounded to around EUR20 a tonne.

In their EUA price forecast until 2030, the team behind Refinitiv Carbon Research revised their previous EU ETS emissions and EUA price forecasts. The new estimate is that emissions will drop 14 percent this year compared with 2019.

Overall for 2021-2030, we expect EUA price to average EUR20 a tonne, or EUR6.8 a tonne lower than the previous price forecast in January (Eikon users can access the full report). Not an Eikon user? Sign up here.

Watch: Financial markets should prepare for a $4 trillion carbon correction

The world emitted roughly 55 giga-tonnes of carbon dioxide or CO2 equivalent last year, the highest level in human history. Our Carbon Correction analysis showed that only 20 percent of those emissions were taxed, and at an average level that most economists and climate scientists say is too low to have an impact on emissions.

Taxing all those 55 giga-tonnes of CO2 at US$75 a tonne — the amount the IMF sees as needed to limit the temperature increase to two degrees — would generate a ‘carbon gap’ of almost US$4 trillion, equivalent to 4 percent of world GDP, that global businesses have not yet factored in.

Saving whales will contribute to mitigating climate change and saving the planet. As Ralph Chami told me: “All we need to do is to let the whales live.”

Read the Global Carbon Market Report 2020, Refinitiv’s annual review of carbon markets that showcases the main trends in global emission trading systems, and areas where such systems are emerging