Governments across the globe are looking to expand carbon markets – with the potential value reaching $22 trillion by 2050. This means carbon markets could exceed the oil market’s value as early as 2025. Big energy trading houses have noticed, which is why they are switching focus from oil and natural gas to carbon-trading operations.
This summer, the EU unveiled plans to expand its market, and China has started its own limited trading system. The Biden administration is interested and supportive of pricing carbon, but it is still far behind the EU and China. Right now, in the U.S., the price of carbon is market-led.
Big traders, such as Vitol Group and Glencore PLC, aren’t waiting for the U.S. Neither are Trafigura Group Pte. Ltd, and Mercuria Energy Ltd. All are working to increase trading capabilities, prepping for a shift in the marketplace as new regulations are implemented. They have even built up teams in anticipation.
BP, recognizing that competition will be fierce, has reportedly increased the salaries of key staff. Currently, carbon makes up 5-10% of their activities, contributing $50-$100M to trading profits annually.
Shell is also interested. A representative stated that the company was looking to build their participation in the carbon market as they work towards being a net-zero-emissions energy business.
Although interest is hot, some banks have decided to proceed with caution without a global framework in place. Chris Leeds, Head of Carbon-Markets Development at Standard Chartered, said, “There is huge interest in participating in carbon markets from banks, but they are extremely concerned about the reputational risk… The problem is defining what are high-quality carbon credits.”
Their position is understandable.
Still, with carbon markets at the forefront of consumer, business, and government minds and a $22T global value in play, carbon markets may very well be the opportunity of a lifetime for many.
It will be interesting to see how the U.S. responds and how the markets react.
One thing is for sure: the carbon marketplace is here to stay. And, while it may not be perfect – yet – all eyes are on making it better. A positive for big traders and the environment alike.
