Carbon Pricing Tops PRI Policy Priority Forecasts

PRI updates 10 key policy shifts expected before 2025; investors told to treat forecasts as climate scenario to aid transition to net zero. 

The US could announce a national carbon pricing system as early as 2023 “and signal a strong carbon price path to reach a backstop of US$65 by 2030”, according to the 2021 Inevitable Policy Response (IPR), commissioned by UN-convened body the Principles for Responsible Investment (PRI).

The 2021 IPR highlights 10 key climate-related policies over eight climate risks which policymakers around the world will be focused on and responding to between now and 2025. Carbon pricing is the leading policymaker priority, according to the report.

PRI’s forecasted US carbon price is much tougher than US Treasury Secretary Janet Yellen’s previous calls for a price of US$40 per metric tonne by 2035.

The EU will also likely deliver “substantial carbon prices”, the IPR added. By 2030, PRI predicts EU policy will backstop an EU ETS carbon price of US$75 per metric tonne.

In a webinar launching the 2021 IPR yesterday, PRI encouraged investors to adopt the forecasts as a climate scenario from which to alter their approaches to mitigating climate risks and decarbonising their portfolios.

Panellist Thomas Kansy, Director of Vivid Economics, emphasised that the idea of a just transition was taken into account in the formation of the IPR, as a “key lens in which to view all IPR policies, in order to ensure they remain socially and politically feasible to implement”.

The IPR also expects stronger policy responses to nature-related risks, such as forestry and agriculture, which have been “sorely missed” in investors’ approaches to mitigating ‘E’ risks, according to Kansy.

The IPR further indicated that major tropical forest countries will have ended deforestation by 2030. “These countries would create domestic policies to that effect, responding to pressure to ensure deforestation-free supply chains,” Kansy said.

The US, Canada, Australia and other major agricultural producers are expected to have “comprehensive mitigation [policies] in place” by 2025, aiming to reduce emissions from the production of crops and livestock.

“As the realities of climate change become increasingly apparent, further policy responses from governments are inevitable. The key questions for investors are: when these responses will come, what policies will be used and where the impact will be most deeply felt?” said PRI CEO Fiona Reynolds.

The IPR forecast was commissioned by the PRI and led by Vivid Economics and Energy Transition Advisors. Research was conducted using a survey of 200 global policy experts from 21 countries which represent more than 75% of global GDP.

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