The Emissions Trading market is estimated to be valued at US$ 334.80 billion in 2022 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:
Emissions trading, also known as cap and trade, is a policy mechanism where a cap is set on the total emissions of carbon dioxide or other pollutants. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances which represent the right to emit a specific amount. Those below their emissions target can sell surplus allowances to those who will exceed their target. This provides flexibility to affected companies while also ensuring that the total amount of allowed emissions is not exceeded.
Market Dynamics:
Surging implementation of carbon trading programs across regions is expected to drive the market growth over the forecast period. For instance, the European Union Emissions Trading System is considered as the largest trading system and has been implemented since 2005.In California also, the Global Warming Solutions Act has initiated a carbon trading program since 2013. Another factor fueling the market is growing prominence of pricing carbon indirectly as an alternative to direct carbon taxes. This makes the emission reductions more cost effective. Increasing adoption of emissions reduction goals along with net zero commitments by countries and companies is also propelling the demand for emissions trading mechanisms to achieve the targets.
SWOT Analysis for Emissions Trading Market
Strength:
- Established regulatory framework and policies designed to lower emissions are driving the market's growth. Government initiatives to control emissions are forcing companies to trade emissions permits.
- Standardized agreements and procedures enable efficient trading of emissions credits between participants. This promotes transparency and reduces transaction costs.
- Trading emissions allows companies to meet reduction targets in a cost-effective manner while stimulating investment in cleaner technologies.
Weakness:
- Complex compliance processes and lack of harmonization across jurisdictions increases administrative burden for participants. Different rules across regions pose challenges.
- Market is still in a nascent stage in many parts of the world. Low participation and liquidity hampers the market's full potential.
Opportunity:
- Tightening of emissions norms worldwide presents an opportunity for the market to grow substantially. More sectors can be brought under the cap-and-trade framework.
- Emergence of carbon offset programs related to forestry, waste management etc. increases the tradable asset pool and scope of the market.
Threats:
- Changes in environmental policies and regulations across jurisdictions pose uncertainty. Regulatory risks can impact compliance needs and trading decisions.
- Economic slowdowns may lower the growth prospects as emissions reductions become a lower priority during downturns.
Key Takeaways
The global Emissions Trading Market Share is expected to witness high growth, exhibiting CAGR of 24% over the forecast period, due to increasing policy interventions by governments to curb carbon emissions and transition to a low-carbon economy.
Regional analysis - Europe dominates currently with over half of the global market share due to the well-established EU Emissions Trading System. Asia Pacific region is expected to be the fastest growing market led by China's national emissions trading scheme and commitments by other large economies like India.
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 are focusing on enabling trading of environmental assets like carbon offsets and exploring opportunities in voluntary markets.
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