Lord Duncan of Springbank, a former BP policy analyst, says if the landmark COP26 is “in any way successful” it may lead to an increased financial hit for emitters.
Taking place in Glasgow in November, the event will bring together world leaders in order to set out a clear path for tackling global warming. Previously, carbon prices have acted as more of an “irritant” to companies, one that they could “just about swallow” without making wholesale changes, Lord Duncan said.
But as the cost has risen, there’s been an “increasing drive” for efficiency to reduce emissions. A UK Emissions Trading Scheme (ETS) came into force on January 1, replacing the EU’s largely identical mechanism following Brexit. Under the system, a limit is set on the volume of emissions that can be emitted by a participant, reducing over time so that CO2 falls.
Within the cap, businesses buy and sell so-called “emissions allowances” through government auctions or secondary markets. In May, when the trading scheme officially kicked off, carbon prices had reached over £50 a tonne, higher than the EU equivalent. With more stringent emissions reduction targets becoming likely, it’s possible that cost will increase further in the years to come.
Speaking on Wednesday at the second day of Offshore Europe, Lord Duncan said: “What we’ve not yet reached is the crossing of the threshold that will incentivise new technologies; where it will become economic to switch the methods by which you are creating your product.
“If we can get to the stage of a three figure price then we’ll begin to see major change, but there will be pain in that as well.
“Not everyone is able to do it. Not everyone is financially ready and we’ve been through a challenging period full stop with Covid.
“The challenge will be whether we see a continued rise in the carbon price or a plateauing at a lower level before there’s a potential push again. The only way to do that is to limit the number of permits that are in play.
He added: “We should get to a three figure sum if things continue post-Glasgow. That might be a thing that you could see COP26 leading to if it’s in any way successful.”
