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Carbon Pricing Primer

Smith & Williamson Investment Management

February 2020

Please read the important information page

Smith & Williamson Investment Management 1

Contents

1. Introduction 2

2. Climate change risks 3

3. What’s happening in the industry? 4

4. Putting a price on carbon 6

5. Implementing carbon pricing 8

6. Challenges in carbon pricing 10

7. Carbon pricing in the future 14

8. Glossary 15

9. Resources 17

Important information


1. Introduction

Climate change has become a daily theme of our lives, with increasing volume of science and reports urging more

and more action. The famous 2015 Paris Agreement has now been signed by 197 state parties (and ratified by 187)

and was the first legally binding global climate change agreement. Its objective is to keep global warming below

2C above pre-industrial levels. Since then, the debate on how to achieve this is being tackled by policymakers and

industry alike and more solutions are being proposed all the time. The UK has committed itself through the Climate

Change Act 2008 to net zero emissions by 2050. The world will be watching what Boris Johnson does at COP26, the

UN’s annual climate change summit, in Glasgow later this year. He has recently appointed Mark Carney, the retiring

Bank of England Governor and a leading climate change advocate, as his Finance Advisor for the summit. COP26

provides an opportunity to showcase the UK’s leadership in financial services and climate change.

Regardless of personal views on climate change, it is a theme that can no longer be ignored in the investment

world. There are now c.1800 climate change laws and policies in place by over 180 governments around the world.

Trillions of investment assets are being invested in this way, with the United Nations supported PRI (Principles for

Responsible Investment) now having over 2300 signatories that represent c. $90 trillion of assets under

management. The IMF reported in October 2019 that there are more than 1500 equity funds worth $600bn with

explicit sustainability mandates, a figure that is growing rapidly. Momentum is set to continue, so being aware of

the latest developments in ESG investing is key to avoiding declining growth prospects for certain companies or

stranded assets (‘assets which suffer from premature write-downs or devaluations’, e.g rights to carbon resources

that have less value in a clean technology world). Furthermore, incorporating ESG analysis into the investment

process opens up the $26tn of investment opportunities estimated by the 2018 New Climate Economy report.

Please note there is a glossary of terms and resources page towards the back of this document.


2. Climate change risks

The TCFD (Task force on Climate-related Financial Disclosures) categorises two types of risk arising from climate

change: Physical and Transition.

Physical Risk

Risks relating to the physical effects of climate change. Physical risk can be both acute (event driven, such as the

Australian Wildfires) or chronic (longer-term physical impacts, such as the erosion of Arctic sea-ice). Other

examples include flooding, droughts, hurricanes and coastal erosion. The financial consequences can be direct,

such as property/asset damage, or indirect such as broken supply chains or more expensive ones. The Insurance

sector is an example of an industry that is undergoing considerable change trying to quantify the impact of physical

risks, particularly in high-risk regions.

Transition Risk

This is risk relating to the societal shift from a high to low carbon usage economy. Moving from our current emission

levels to lower levels will involve high-impact legal, technological and market changes as well as extensive policy

shifts. Adapting and preparing for these shifts may have various financial impacts on companies, depending on their

exposure to carbon intensive activities.


3. What’s happening in the industry?

A lot of emphasis has been on governments and supranational groups to enact climate change policy at a meaningful

level. However, many company alliances and industry bodies are taking proactive steps to set their own standards

and targets to tackle emissions. Some of the recent developments in various sectors are explored below. For many

investment professionals, these provide opportunities to find companies whose ESG policies lead to sustainable

growth prospects.

Clean Cities

Over half of the global population lives in cities, which is projected to rise to two thirds by 2050. According to the

UN, cities occupy just 3% of Earth’s land but account for 60-80% of energy consumption. Therefore, developing

sustainable cities and clean infrastructure will be instrumental in reducing global greenhouse gas emissions.

Solutions in the construction industry stand to benefit the most, given that $11.4tn was spent on new construction

in 2018 and it is one of the most polluting sectors with buildings accounting for 40-50% of global emissions. Cities

in the developing world are an area of particular note as 90% of urban expansion in upcoming decades will be in

emerging market regions. The Sustainable Cities Program, run by the Global Environment Facility, supports cities

in developing countries to execute city-wide plans for low-carbon infrastructure projects and provides finance

across transport, energy, buildings, waste and water projects. It currently engages with 28 cities in 11 developing

countries (including Brazil, China, India, Mexico and South Africa) through $151.6mn GEF grants and co-financing

of $2.4bn. Sustainable urban planning initiatives such as these provide multiple environmental benefits and

investment opportunities in the low-carbon economy, biodiversity conservation, reducing land degradation and

increasing the productivity of existing urban infrastructure.

Shipping

As the industry responsible for around 90% of world trade, international shipping is of huge importance not just to

economies but also transport emissions. The International Maritime Organisation is the regulatory body to watch

for impacts for new standards in shipping. Recently, the IMO implemented regulation aimed at curbing sulphur

emissions by banning fuels with sulphur content over 0.5% (previously 3.5%). This will lead to ships being retrofitted

with scrubbers, switching to higher grade fuels, or the removal of some ships which are no longer economically

viable. A report from IHS Markit says this sets the stage for a shipping market recovery in 2020, as complying with

these regulations should lead to smaller fleets, which in turn will increase freight rates and ultimately boost orders

as demand remains steady. The IMO actions do a huge amount to improve air quality, but the next stage for the

industry will be to convert to different fuels to reduce CO₂ emissions.

Aviation

CORSIA, or the Carbon Offsetting and Reduction Scheme for International Aviation, is the aviation industry’s global

market-based measure agreed by the industry. Its aim is to address the CO₂ emissions caused by international

aviation and stabilise net CO₂ emissions from aviation at 2020 levels, whilst still allowing for carbon neutral growth.

It is overseen by the ICAO (International Civil Aviation Organisation). Aviation is estimated to be responsible for 2%

of CO₂ emissions.

It is already underway as a scheme. From January 1st 2019, all carriers are now required to report their CO₂

emissions on an annual basis. Furthermore, all participating airlines will be required to buy offsets to account for

any growth in CO₂ emissions above 2020 levels. From 2021-2026, only airlines who have volunteered will be involved

in offsetting. From 2027, all international flights will be subject to it (apart from a handful of carriers from least

developed nations or small island states). The offsetting regime is quite controversial, so longer term solutions are

required.

The development of electric engines for large aircraft is still a long way off, so biofuel is an obvious medium-term

beneficiary. NASA research estimated that if aviation used at least 50% biofuel mixtures, pollution from air traffic

could be cut by 50-70%. Some of the airlines which have trialled and used biofuel on commercial flights include

Lufthansa, KLM, Virgin Atlantic & Australia, British Airways and Scandinavian Airlines. However, biofuel production


can itself be problematic as in the past forest land has been converted (e.g for palm oil production) which negatively

impacts biodiversity and caused land degradation.

Fashion

COP24 in 2018 saw the launch of the Fashion Industry Charter for Climate Action. Similarly to the UK’s goal, many

fashion industry stakeholders have committed to net zero emissions by 2050. The charter also mandates a target

of 30% GHG emission reductions by 2030 and the setting of a decarbonisation pathway for the industry to follow.

The Charter has been committed to by 43 fashion industry leaders, including logistics companies as well as fashion

ones. One of the concrete actions being undertaken to reach 30% reduction by 2030 is eliminating coal-fired boilers

and power generation for fashion companies and suppliers from 2025 onwards.

Manufacturing – Building Materials

After water, concrete is ranked as the second most consumed resource in the world. Its main ingredient is cement,

which the IEA estimates accounts for around 7% of CO₂ emissions. Bill and Melinda Gates’ annual letter pointed out

that the number of buildings in the world is set to double by 2060, so being proactive in the building materials

sector is important to capping pollution.

Some companies are heading that way, with the first ever climate change forum taking place in 2018 by the World

Cement Association. The world’s second largest producer, Heidelberg Cement, has also committed to net zero

emissions by 2050. Technological solutions are also being explored, with many start-ups in the space developing

ways to reduce production emissions. Some cities such as Vancouver and Vienna are building skyscrapers mostly

constructed from wood, and new materials such as cross-laminated timber are being explored as a cement

alternative (it lacks cement’s moldability, but equals it in strength, is easier to transport and traps the carbon the

tree consumed during its lifetime).

Those are just a few examples of what some sectors are doing to tackle climate change. What’s clear is that whilst

climate change is a daunting problem, it is sparking innovation and opportunities within these sectors. The

companies that are proactive and take the initiative on curbing their GHG emissions are likely to have steadier and

more sustainable growth prospects in the long term, with less chance of being caught out by top-down regulation.

Tying it together: where does carbon pricing come in?

Whilst sectors continue to innovate in their specific areas and come up with ways to tackle their unique

contributions to climate change, considerable thought has gone into how to tie these separate efforts together.

Carbon pricing is a proposed market-based solution that would ideally be universal and stabilise the price of carbon

emissions activity at a level that is sustainable for the future.

Carbon pricing is a solution that both:

• puts a price on carbon emissions so that companies internalise the environmental and social cost of their

operations

• encourages innovation and investment in low-carbon emission solutions to minimise costs.

The general idea behind the concept is that those who create the most emissions will pay the most.


4. Putting a price on carbon

There is a range of instruments and methods used to price carbon. However, there are two main approaches that

are currently being adopted. Each approach has either the advantage of price certainty or emissions certainty, and

the merits of each are still under intense debate.

Carbon Tax

A carbon tax is a straightforward method of pricing carbon involving a government putting a direct price on an

amount (usually a ton) of carbon emissions. Companies will then pay that direct amount/rate on each ton of

emissions generated by their economic activity that year. The key advantage of this method is price certainty and

predictability, given that the stipulated price-per-ton of emissions is fixed. Furthermore, a tax is an easily

understood concept.

Emissions Trading Systems (ETS)

Also known as cap-and-trade

An ETS, in comparison, is a market-based approach to pricing carbon. Rather than setting a direct price per ton of

emissions, a government will set a limit (the ‘cap’) on total emissions and then sell or give permits for emissions

to market participants. A permit will be for a set amount of emissions. Companies must hold an amount of permits

equal to the quantity of emissions over the defined time period, giving them two options:

• use their permits precisely and hold at their historical pollution levels

• emit more and buy more permits on the market or reduce emissions and sell their excess permits (the

‘trade’).

In an ETS companies also have the option to buy and bank permits if they forecast higher future emissions. In

contrast to a carbon tax, an ETS provides emissions certainty, as an overall, finite limit has been set by the

governmental body.

Comparing ETS vs. Carbon Tax

Carbon Tax ETS

Price certainty

Environmental certainty

Both methods provide clear incentives for polluters to reduce their current emissions to pay less, or pay more than

they have historically for their contribution to the cost of climate change. Carbon pricing in either method also

encourages investment flows to businesses developing clean technology and energy.

Other carbon pricing mechanisms

Less mainstream approaches in carbon pricing include:

Results Based Climate Finance

A framework rather than a product or mechanism, economic actors are rewarded with funds when they meet

climate related goals (such as CO₂ emissions reductions). This requires third party independent verification to audit

that goals have been achieved. RBCF is a ‘carrot’ approach, aimed at prompting companies to take proactive

measures to reduce emissions.


Internal Carbon Pricing

Under this approach, capital allocators such as governments, firms and investors devise their own internal price of

carbon use, and then use that in all their investment decisions. This option encourages investment flows towards

low-carbon innovations and uses.

Offset Mechanisms

A complementary rather than alternative approach to carbon pricing. An offset mechanism is paying for greenhouse

gas reductions by funding projects, programmes or technologies that offset carbon-emitting activity. Some offset

programs issue credits that can be registered and accounted for, in order to meet transparency and compliance

requirements. easyJet now offsets 100% of its carbon emissions.


5. Implementing carbon pricing

Carbon pricing, under both approaches, has already been implemented by a number of nations with widespread

ongoing consideration by other countries. The major influencers of carbon pricing are policymakers such as

supranational organisations and governments. The momentum of climate change debate has also accelerated the

adoption of carbon pricing to mitigate the impact of greenhouse gas (GHG) emissions.

Global

Under the banner of the United Nations Framework Convention on Climate Change (UNFCCC), 195 member countries

have signed the Paris Agreement, with 187 currently being subject to it (November 2019). The Paris Agreement’s

key goal is to keep the increase in global average temperature below 2C over pre-industrial levels. This agreement

has spurred many countries into action over tackling the causes of climate change, with carbon pricing being one

solution. Article 6 addresses how countries can work together by adopting cooperation mechanisms to meet their

climate change responsibilities, for example encouraging the formation of international carbon markets.

According to the World Bank’s report on carbon pricing for 2019, 11 new initiatives were implemented in 2018 and

2019. This brings the total carbon pricing initiatives implemented, and scheduled for implementation, to 57:

• 28 ETSs in regional, subnational and national jurisdictions

• 29 carbon taxes (primarily national level)

This is estimated to cover 11 GtCO₂e or 20% of global greenhouse gas emissions.

United Kingdom

The UK participated in the EU Emissions Trading System (ETS) until recently. A carbon price floor is also applied to

the power sector. The UK has indicated that its preferred path post-Brexit would be to establish and link a UK ETS

to the EU’s, but possibilities being considered are:

• Remaining in the EU ETS

• A carbon tax

• Establishing a standalone UK ETS

In the event of no deal Brexit, the 2018 Budget indicated that a temporary carbon tax would be applied to all UK

installations currently participating in the EU ETS (excluding the aviation sector). This temporary measure is

intended to keep the UK on track to meet its legally binding commitment in reducing emissions under the Climate

Change Act 2008. COP26 is due to be hosted by the UK on the 9th-20th November 2020 in Glasgow. As the UN

climate change summit, it is one of the most important periods of the year and is intended to be a source of

international agreements and action.

The most recent event, COP25 in Madrid, in December 2019 drew a lot of public and media attention for the wrong

reasons. It was extended 44 hours past its scheduled end with little to show for it, such as failures to progress on

key outcomes such as a Paris Agreement. UN Secretary General Antonio Guterres was “disappointed” by COP25 and

that “an important opportunity to show increased ambition on mitigation, adaptation & finance to tackle the

climate crisis” was lost. The lack of resolution was largely driven by regional blocs failing to agree on a unified way

forward: China and India were accused of projects “double counting” carbon credits, whilst the EU was accused of

blocking progress to protect its internal carbon market. $100bn annually had been pledged by rich countries to help

poor countries meet climate targets under the Paris Agreement from 2020, but with the US leaving the source of

these funds is in doubt.

There is a lot more pressure on COP26 to finish the agenda of 2019 as well as up the pledges to stall the global

temperature rise. There is also ample opportunity for the UK to promote more decisive and collaborative action as

the host. Some observers have suggested the UK could imitate Paris’ actions before the 2015 summit by sending

diplomats to capitals to secure some preliminary agreements before the event takes place. In that way, progress

can be made before tens of thousands of delegates gather in an environment that is rife for defending national

interests and blaming each other for the current state of affairs.


Europe

Phase 4 reforms to the EU Emissions Trading System were applied in early 2018. Until that point prices hadn’t seen

much movement over €10/tCO₂e, due to a surplus of permits. However, over the last two years and due to measures

taken to address the oversupply, carbon prices have increased and remained consistently at the $22-28/tCO₂e

levels. Such measures include the EU phasing out the allocation of free carbon credits (except to those industries

at highest risk of carbon leakage – moving operations to countries with weaker carbon regimes), which is expected

to significantly increase the price of carbon. For example, the manufacturing industry received 80% of its permits

for free in 2013, but the proportion is now down to 30% in 2020.

Europe has also been active in advocating for carbon pricing globally. It has held a policy dialogue with China over

cooperation to develop their ETS, and EU and Californian officials have committed to aligning principles on carbon

pricing and increasing dialogue frequency.

Canada

A federal carbon pricing initiative has been implemented, with a federal benchmark for carbon pricing but provinces

have the flexibility to develop their carbon pricing initiatives. It was applied through the Greenhouse Gas Pollution

Pricing Act and is made up of both tax and ETS elements.

United States

The US withdrawal from the Paris Agreement by the Trump administration has been a major blow to international

efforts to form a unified group tackling climate change, particularly as the US is the second-highest carbon emitter

in absolute terms. However, as there is no way for any country to withdraw from the agreement until four years

after it went into effect, the process only begins in late 2020 after the next round of US presidential elections. So

far, the US continues to show up to UNFCCC sessions, though, since Trump’s announcement there has been a void

in leadership. Whilst undoubtedly a negative impact to international cooperation on climate change, there is a

multitude of ongoing carbon pricing initiatives within the US despite the withdrawal.

At a federal level, lawmakers continue to work on and discuss bills for an Emissions Trading System and a carbon

tax within various committees. Focus is particularly on returning carbon price revenues to citizens. Various states

have progressed on an individual level and also continue to plan further cooperation with each other. 12 states are

members of the Carbon Cost Coalition, a group comprised of state legislators taking action on emission reductions.

The RGGI (Regional Greenhouse Gas Initiative) is another US initiative aimed at implementing carbon pricing. RGGI

states are on track to adopt cap and trade regulations as well as add two further states to their number in 2020.

States with established ETS: California, Massachusetts, Washington

States considering ETS: New Jersey, New Mexico, Oregon, Virginia

China

China is developing a national ETS and is currently drafting the regulation. A number of regional pilot ETS exist

with differing levels of activity, for example in Beijing, Hubei, Shenzhen and Guangdong. The national ETS is set to

launch in 2020.

Korea

Korea’s ETS has entered its second phase of reforms.

Australia

A carbon tax was repealed in 2014. To date, Australia has implemented the Emissions Reduction Fund (ERF)

safeguard mechanism in 2019 – a program where the government funds emission reduction projects through a

reverse auction.

New Zealand

An ETS is in place. NZ and the EU have announced plans to enhance their bilateral cooperation on emissions trading.


6. Challenges in carbon pricing

Like many new initiatives, carbon pricing methods still have some flaws to be worked out and worked around.

Still a long way to go

Current efforts, despite the rapid developments, are far from sufficient to meet the goals of the Paris Agreement.

Less than 5% of emissions under carbon pricing initiatives are at an adequate price to meet the 2C goal. The graph

below shows the changes in global surface temperature that have already happened:

The chart shows there is only 1C left of room. What’s more, 19 of the 20 warmest years have all occurred since

2001. The next graph shows the growth in carbon emissions since 1751, which has a positive relationship with the

rise in global average temperatures.


The growth of carbon emissions has warmed the surface temperature of Earth to the point that Arctic sea ice is

eroding at an alarming rate. Arctic sea ice reaches its minimum level in September each year. The below graph

shows the average extent of Arctic Sea Ice each September and is sourced from satellite observations.

The most concerning fact about the sea ice erosion is that it brings the earth closer to a positive feedback loop of

global warming.


This is due to ice’s ability to reflect around 80% of solar rays, but dark ocean water can reflect as little as 5%.

Source: Climate Action Tracker, December 2019

What’s clear from the scientific evidence is that significant headway still needs to be made for the signatories to

meet their combined commitment. This means more nations need to commit to implementing a carbon pricing

mechanism, more regulators implementing carbon pricing mandates at a faster rate than current, and more market

Sea ice melts

Less solar

radiation reflected

More heat

absorbed by ocean

Earth warms faster

Rate of melting

increases


participants actively involved in ETSs. Whilst we are moving in the right direction, how to increase the rate of

change is a conundrum that is not easily solved.

Risks in this area would include increased national protectionism which would reduce cooperation and efficiency

in ETSs on a multinational level.

A ‘Just Transition’

The idea of a ‘just transition’ for workers and communities during the shifts from a high-carbon to low-carbon

economy was a key part of the 2015 Paris Agreement. The initiative was launched in February 2018, supported by

the PRI, to identify the role that investors can play in connecting their actions on climate change with ways to

reduce the social costs and transitional risks of the changes required for consumers and communities.

Whether through a trading system or a tax, pricing carbon will increase the cost of energy. It is not easy to

determine the distributive impact of carbon pricing according to income level, but without careful thought there

may be a disproportionate impact on the poor. They are, by definition, less able to bear the burden of increased

cost of fuel for transport, energy bills for light and heating, and food (indirectly through increased transportation

costs to supermarkets).

To engage with this issue, governments would have to address how and if businesses shift these costs to consumers

and how revenue collected from carbon taxes is utilised – for example, to benefit low income groups who may be

losing out in a higher energy price environment. One example is the German initiative to phase out power

production from coal by 2038, whilst supporting coal mining regions affected through the investment of billions of

euros (one commission source states €40bn) for structural adjustment. Investors also have the ability to support

inclusive development opportunities to mitigate the societal impact of transitioning to a low-carbon economy.

Carbon leakage

Inevitably, there is inconsistency in carbon pricing regulations and policies on a regional and national level. Similar

to regulatory arbitrage, a result of this is businesses (particularly carbon intensive ones) shifting geographic location

to regions with fewer or lower cost carbon policies.

The EU Commission has responded to this issue by giving out a higher share of free permits to a list of sectors it

perceives as significantly exposed to risk of carbon leakage under Phase 3 of the Emissions Trading Scheme rules.

Revisions are currently underway for phase 4, where current guidelines forecast phasing out free allocation for less

exposed sectors completely by 2030.

Furthermore, the European Commission is planning and developing a carbon border tax to protect EU producers

from cheaper imports from countries with weaker carbon regimes. The tax is part of the Green Deal unveiled by

Ursula von der Leyen, EU executive president, in December 2019. The mechanism is currently being worked on, but

in all likelihood will soon be in the testing phase on materials such as cement, steel and aluminium.

Carbon Pricing Today

• 57 overall implemented or scheduled initiatives

• 46 national initiatives

• 20% of GHG emissions are under carbon pricing schemes

• $1-127/t price range for carbon

• 51% of emissions are priced below $10/t

• $24/tCO₂e UK carbon price floor


7. Carbon pricing in the future

Established supporters of carbon pricing such as the EU, New Zealand and Canada continue to adapt and reform

their ETSs, as well as promote it in international policy forums.

In many large countries, such as the US and China, regional carbon pricing initiatives and particularly ETS programs,

continue to thrive whilst national plans are considered.

The World Bank points out that public support for carbon pricing policies is of singular importance for future

developments. Given the possibility of rising energy prices, carbon pricing implementation is sensitive to social

unrest. Policymakers must be aware that their initiatives can take shape under many different designs and should

be tailored to the unique circumstances of their economies.

It is still early days for carbon pricing, but there are already examples of its success. Sweden introduced a carbon

tax in 1991, and at €114/ton in 2019 it is the highest carbon tax rate in the world. In 2016 the minister for finance

showed Sweden had had 60% GDP growth whilst emissions were reduced by 25% from 1990-2016, showing that

decoupling between carbon usage and economic growth is possible. Meanwhile the EU ETS has seen a 22% drop in

GHG emissions since 2007 whilst experiencing 11% GDP growth over the same period.

From these examples we can see that economic growth is not intrinsically coupled to greater carbon usage. This

provides new growth trajectories for companies who are front-footed about reducing their emissions and protecting

themselves from physical and transition risks arising from climate change, and likewise their investors. The path to

carbon neutrality is not without roadblocks, but there are great opportunities out there for those who seek them

out.


8. Glossary

Biofuel: Fuel derived from biological, renewable sources, such as sugar cane, waste and maize.

Cap and trade: Emission trading scheme where companies can buy or sell permits to emit greenhouse gases in a

market. The volume of total issue permits sums to the cap imposed by the national authority.

Carbon leakage: The problem where industries shift to countries with weaker or no emissions regulations.

Carbon sink: A process or mechanism that removes carbon from the atmosphere. The biggest naturally occurring

carbon sinks of oceans and forests.

CCS: Carbon Capture and Storage. A process where concentrated carbon dioxide from large emitters (such as the

industrial gas and cement industry) is injected into underground reservoirs.

CO₂: Carbon dioxide. The main greenhouse gas arising from human activity.

CO₂e: Carbon dioxide equivalent (This unit allows the conversion of other greenhouse gas emission volumes into

the equivalent warming effect if they were CO₂)

COP: Conference of the Parties, a major United Nations climate change summit that happens annually. COP26 will

take place in Glasgow, November 2019.

CORSIA: Carbon Offsetting and Reduction Scheme for International Aviation. An aviation sector scheme where

volunteering airlines will offset any carbon emission increases above 2020 levels from 2021-2026.

EU ETS: European Union Emissions Trading Scheme

Externality: These can be positive or negative. A negative externality would be a cost received by a third party

(e.g society) who has no control over the creation of that cost.

Feedback loop: In the climate change feedback loop, rising temperatures cause effects in the environment that

change the rate of warming. For example, melting Arctic ice means there is a smaller area of white ice to reflect

the Sun’s heat back into space. The less heat that is reflected into space, the more the earth heats up and the

faster the remaining ice melts.

Fossil fuel: Fuels containing hydrocarbons, such as oil, gas and coal. They produced carbon dioxide when burned.

GHG emissions: Greenhouse gas emissions. These gases trap heat radiating from the Earth towards space, making

the Earth’s atmosphere warmer. Carbon Dioxide is the most well known, but others include methane, halocarbons

and nitrous oxide.

GtCO₂e: gigatons of CO₂ equivalent

Halocarbon: A group of gases that include CFCs (chlorofluorocarbons – these contributed to the hole in the ozone

layer) and HFCs (hydrofluorocarbons – these trap heat in the atmosphere).

IEA: International Energy Agency. Provider of analysis, research and policy recommendations on all fuels and energy

sources across the spectrum, from oil and gas to renewables.

IPCC: Intergovernmental Panel on Climate Change. Established by the UN and WMO (World Meteorological

Organisation). It assesses scientific work produced about climate change and provides reviews. It does not do its

own research.

Methane: Greenhouse gas. Methane warms the planet by 84x as much as CO₂ does but has half the lifespan. Methane

decays into CO₂ after one to two decades, whereas CO₂ can remain for centuries.

Nitrous oxide: Greenhouse gas. Like methane, it is more potent than CO₂ and can trap heat 200-300x more

effectively in the atmosphere. It can last in the atmosphere for over 100 years. Fossil fuels are one source of this

gas, but the now widespread use of nitrogen-based fertilisers is another.

PPM: Parts per million. A measure of emission volume.


Pre-industrial CO₂ levels: Level of CO₂ before the Industrial Revolution. Estimated at 280ppm – we are currently at

around 380 ppm.

(UN) PRI: The United Nations supported Principles for Responsible Investing. Developed by investors, for investors,

the six principles are a voluntary set of potential actions signatories can follow to incorporate ESG issues into their

investment process.

Scrubbers: Systems on ships that remove toxic sulphur dioxide from the exhaust gas.

Stranded asset: An asset that has suffered an unanticipated write-down or loss of economic value, or is converted

from an asset into a liability. The concept arose from a 2011 report by Carbon Tracker, which estimated that the

majority of fossil fuel reserves listed on the stock markets would be ‘unburnable’ if we are to keep the global

temperature rise under 2 degrees. In this way the economic value of these assets is overstated.

Sulphur dioxide: Greenhouse gas. It causes acid rain which can corrode structures and alter the soil, making the

growth of plants difficult.

Supranational: Multinational organisations in which the interests and influence of member states transcends

individual national interests.

TCFD: Task force on Climate-related Financial Disclosures. Mark Carney formed the TCFD at the request of the G20

finance ministers and Central Bank Governors as part of an effort to assist the financial sector in accounting for

climate related risks.

UNFCCC: United Nations Framework Convention on Climate Change. Ratified by 192 countries, and refers to a series

of international agreements on the subject of the global environment in 1992. It aims to prevent dangerous human

interference with the global climate.


9. Resources

Reuters

CARBONPRICE in the search bar will bring up the daily carbon prices for Europe. Research, news and tables of the

future and spot prices are also available through this app.

World Bank

The World Bank produces publications on carbon pricing annually, as well as an up to date dashboard on carbon

pricing initiatives.

https://carbonpricingdashboard.worldbank.org/

Carbon Pricing Leadership

CPLC is a coalition of policymakers and academics publishing and promoting carbon pricing initiatives. They produce

frequent high level reports.


UK Policy

The gov website provides consultations, guidance and resources on the UK government’s present and future stance

on carbon pricing programs and low carbon technologies. There is also an overview of carbon trading valuation.

https://www.gov.uk/environment/climate-change-energy

https://www.gov.uk/government/collections/carbon-valuation--2

Bank of England

The Bank of England monitors climate change as a risk to its objectives, and carries out ongoing research and

supervision. The Bank frequently produces discussion papers on the subject, and is a founding member of the

Central Banks and Supervisors Network for Greening the Financial System.

https://www.bankofengland.co.uk/climate-change

https://www.ngfs.net/en

The PRA reviews and conducts stress tests to establish the stability of the insurance and financial services sector

in response to climate change risks. Some of their working papers are linked here.

Insurance: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/impact-of-

climate-change-on-the-uk-insurance-sector.pdf?la=en&hash=EF9FE0FF9AEC940A2BA722324902FFBA49A5A29A

Banking: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/report/transition-in-

thinking-the-impact-of-climate-change-on-the-uk-banking-

sector.pdf?la=en&hash=A0C99529978C94AC8E1C6B4CE1EECD8C05CBF40D

The FCA is monitoring climate change and the growth of green finance. One of its current efforts is to improve

climate-related disclosures by issuers. The FCA also co-chairs the Climate Financial Risk Forum alongside the PRA,

and publishes discussion papers.

https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/report/transition-in-thinking-the-

impact-of-climate-change-on-the-uk-banking-

sector.pdf?la=en&hash=A0C99529978C94AC8E1C6B4CE1EECD8C05CBF40D

Carbon Tax Center

Reports and updates on where carbon taxes have been proposed and enacted.

https://www.carbontax.org/where-carbon-is-taxed/



https://www.gov.uk/environment/climate-change-energy

https://www.gov.uk/government/collections/carbon-valuation--2

https://www.bankofengland.co.uk/climate-change

https://www.ngfs.net/en

https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/impact-of-climate-change-on-the-uk-insurance-sector.pdf?la=en&hash=EF9FE0FF9AEC940A2BA722324902FFBA49A5A29A

https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/impact-of-climate-change-on-the-uk-insurance-sector.pdf?la=en&hash=EF9FE0FF9AEC940A2BA722324902FFBA49A5A29A

https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/report/transition-in-thinking-the-impact-of-climate-change-on-the-uk-banking-sector.pdf?la=en&hash=A0C99529978C94AC8E1C6B4CE1EECD8C05CBF40D






https://www.carbontax.org/where-carbon-is-taxed/


Berenberg

Berenberg’s Utilities and ESG research analysts have produced papers on the future of the carbon price.

Grantham Research Institute

http://www.lse.ac.uk/GranthamInstitute/

The Grantham Research Institute was established by the London School of Economics and produces research on

climate change.

https://climate-laws.org/

This database provides up to date statistics on climate laws and policies by country, as well as climate-related

litigation.

The Just Transition Guide for Investors

LSE’s Grantham Research Institute, alongside the Initiative for Responsible Investment, has produced a guide for

investor action regarding the ‘just transition’, and how investors can connect their action on climate change with

inclusive development pathways.

https://iri.hks.harvard.edu/just-transition

New Climate Economy

The Global Commission on the Economy and Climate, an international and independent initiative that reports on

how countries can achieve economic growth whilst also addressing climate change risks. They produce working

papers on a 1-2 year basis discussing a particular theme.

http://newclimateeconomy.net/

The EU Commission

The European commission’s website hosts a multitude of resources on the EU’s climate policies, climate-related

events and forums, emissions trading system, relevant funds and contracts and grants details. Their climate landing

page can be found here:

https://ec.europa.eu/clima/index_en

Explanations of how the EU ETS works, as well as the monitoring of allowances, the overall emissions cap and any

revisions to the system can be found here:

https://ec.europa.eu/clima/policies/ets_en

The European Commission also develops a number of publications on climate change, policy and developments as

both thematic and general papers. Some examples include Going climate-neutral by 2050, roadmap for

transforming the EU into a low carbon economy, protecting the ozone layer and financing low-carbon strategies

for developing countries:

https://ec.europa.eu/clima/publications_en

http://www.lse.ac.uk/GranthamInstitute/

https://climate-laws.org/

https://iri.hks.harvard.edu/just-transition

http://newclimateeconomy.net/

https://ec.europa.eu/clima/index_en

https://ec.europa.eu/clima/policies/ets_en

https://ec.europa.eu/clima/publications_en


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instability and underdeveloped markets and systems.

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