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Carbon price to rise, as governments pursue deeper decarbonisation strategies

Oil&Gas Materials 10 May 2021 14:35 (UTC +04:00)
Carbon price to rise, as governments pursue deeper decarbonisation strategies

BAKU, Azerbaijan, May 10

By Leman Zeynalova - Trend:

Carbon prices will rise, as governments pursue deeper decarbonisation strategies, Trend reports citing Fitch Solutions.

“Carbon pricing schemes have had a limited impact on upstream project economics to-date, due to limited coverage and generally low carbon prices. However, carbon price risk will rise, as governments pursue deeper decarbonisation strategies and seek new sources of revenue to fund the transition. While the prospects for an international carbon market are poor in the near term, the use of carbon border tax adjustments could incentivise the development of more carbon markets at the national level. Vulnerability to carbon pricing varies widely across upstream assets, and operators have a number of tools at their disposal to limit their exposure,” said the company.

Currently, 64 carbon taxes and emissions trading systems (ETS) have been put into place or are scheduled for implementation, covering around 22.3 percent of global GHG emissions, according to the World Bank. Based on data from November 2020, prices ranged from USD0.08/tCO2e in Poland, to USD133.26/tCO2e in Sweden. Of the 51 schemes for which prices were reported that month, the average stood at just USD20.36/tCO2e, far below the USD40.00-80.00/tCO2e range that the High-Level Commission on Carbon Prices estimated was necessary to bring emissions reductions efforts into line with the Paris Agreement in 2020.

Major oil and gas producers are more reluctant than most to penalise emissions. Of the top 20 producers globally, only eight have carbon pricing schemes in place and – excluding the US, for which the ETS is subnational and not applicable in the bulk of producing areas – they represented just 17.8% of output in 2020. Moreover, while the average global carbon price for national schemes stood at USD26.58/tCO2e in November, it falls by more than 20 percent - to USD20.41/ tCO2e – when weighted by production. Finally, with few exceptions – notably the EU, UK, Norway and Canada – upstream operations are not generally subject to carbon charges, even where schemes are currently in place.

The upstream oil and gas sector is a major GHG emitter. A blanket carbon tax of USD20/tC02e would have raised over USD25bn globally that year. As a point of reference, the total amount actually raised was USD45bn across all sectors. In practice, even if carbon prices were applied to upstream operations in every jurisdiction, realised revenues would be substantially lower, depending on the threshold for inclusion, criteria for exemptions and the tax treatment of carbon credits. Nevertheless, given the emissions intensity of the sector, the revenue-raising potential is significant.

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