February 21, 2024
Emissions Trading Market
Ict

Rising Carbon Pricing to Impel Growth of the Emissions Trading Market

The global Emissions Trading Market is estimated to be valued at US$ 334.80 billion in 2023 and is expected to exhibit a CAGR of 24% over the forecast period 2023-2030, as highlighted in a new report published by Coherent Market Insights.

Market Overview:
The emissions trading market involves the trading of emissions allowances that are permits to emit a certain amount of greenhouse gases. The major greenhouse gases covered are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Companies can buy, sell, or trade these permits if their actual emissions are above their allocated target. This allows more efficient emitters or those able to cut emissions cheaper to profit from over-achievement. The emissions trading system aims to reduce overall greenhouse gas emissions cost-effectively.

Market key trends:
One of the major trends in the emissions trading market is the rapid increase in carbon pricing around the world. Currently, more than 20 nations and over 30 cities, states, and regions use carbon pricing mechanisms such as carbon tax or emissions trading schemes. The average global carbon price also increased from $2 per ton of CO2 equivalent in 2013 to $14 in 2021. Stringent regulations and policies by governments regarding carbon emissions from various industries are expected to further raise carbon prices over the forecast period. Higher carbon prices will incentivize companies to invest more in renewable energy and clean technologies to reduce their carbon footprint and compliance costs. This will drive the demand for emissions allowances and credits in the trading market.
Porter’s Analysis
Threat of new entrants: There is a moderate threat of new entrants in the emissions trading market due to high capital requirements needed for full scale operations and well established key players. However, the growing opportunities for green businesses can attract new startups over time.
Bargaining power of buyers: Buyers have high bargaining power in the emissions trading market as there are many players offering carbon credits and allowances. Buyers can negotiate prices depending on their emission reduction targets and budgets.
Bargaining power of suppliers: A small number of large oil and gas companies dominate the supply side. However, the growing participation of countries, independent power producers and other industries in emissions trading partially balances out suppliers’ bargaining power.
Threat of new substitutes: There are no close substitutes for emissions trading currently as it remains the major compliance mechanism for achieving emission reduction targets cost effectively under the Paris Agreement. Alternative options like carbon tax are still in a nascent stage.
Competitive rivalry: The emissions trading market witnesses high competition among major players due to their large trading volumes and ability to influence prices in regional markets including EU ETS and California cap-and-trade program.

Key Takeaways
The global Emissions Trading Market Share is expected to witness high growth, exhibiting CAGR of 24% over the forecast period 2023-2030, due to increasing compliance with carbon pricing mechanisms globally. Stringent emission norms by governments and focus on decarbonization will drive more entities to adopt cap-and-trade and carbon offset programs.

Regional analysis: Europe dominates the current emissions trading market with the EU Emissions Trading System (EU ETS) being the largest mandatory scheme. However, over the forecast period China and other Asian countries are expected to emerge as the fastest growing regional markets. Countries like China, South Korea and Japan have either initiated or are planning cap-and-trade programs to cost-effectively meet their NDCs under the Paris Agreement.

Key players: Key players operating in the Emissions Trading market are BP Plc, Royal Dutch Shell Plc, Total SE, Chevron Corporation, ExxonMobil Corporation, Engie SA, RWE AG, ON SE, Vattenfall AB, Gazprom, Mitsubishi UFJ Financial Group (MUFG), JPMorgan Chase & Co., Goldman Sachs Group, Inc., Citigroup Inc., Barclays PLC. These players dominate trading volumes and act as brokers for allowance auctions and secondary markets. They are also active traders for compliance purposes as well as investment and risk hedging.
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Conclusion
In conclusion, the emissions trading market is expected to grow significantly due to stringent environmental regulations globally. While Europe currently dominates the market, rapid growth is expected in Asia Pacific region led by China and other emerging economies. Compliance will continue to be the major driver of demand while investment and speculative trading will also contribute to higher volumes. Key players are focusing on diversifying their carbon portfolios as well as offering advisory and financing services to capitalize on overall market expansion.

*Note:
1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it