Can you guess what were the three best performing commodities over the last two years?
The first one, by some distance, is vanadium, while the second and third, showing similar gains in value, are cobalt and…. carbon, in the form of EU ETS allowances.
The two metals are essential components of batteries. Cobalt is key to the functioning of lithium ion batteries, which power billions of smartphone, laptops, tablets and other devices every day and which we ought to thank (or curse) for allowing our ‘smart’ routines. More significantly, cobalt has recently entered the car business, thanks to its application in rechargeable batteries for electric vehicles. Demand for the precious metal from the car industry has grown fivefold in recent years.
If cobalt is powering our daily life, vanadium is thought to be the ‘next big thing’ in this game. The metal could significantly improve lithium ion batteries, taking energy storage to the next level. It could play a major role in the energy system (eg, enhanced storage capacity for renewables), in mobility (enhanced range for electric cars) and in our daily lives (your smartphone might finally last more than a day!).
These gains in value show that the future will be smart, green … and low-carbon.
The other commodity that made it to the top three is EU ETS allowances (EUAs), which have performed better than cobalt over the last two years. EUAs, which are used by European businesses to comply with the EU ETS, grew a staggering 300% over the last few months moving from a low of around €4.50/tCO2 to €16/tCO2. If you bought a fair number of EUAs few months ago, chances are that you are reading this from a beach in the South Pacific.
The EUAs trend shows that expectations are high for EU’s flagship tool to reduce emissions, which just underwent a major reform. The optimism is not limited to Europe but is reflected across the carbon market landscape. Every year, IETA polls our members on recent developments in carbon markets. This exercise, conducted in partnership with PwC, results in our annual GHG market sentiment survey. This year’s survey shows a refreshing level of optimism, which was absent in recent years.
Carbon market practitioners and aficionados have a good reason to be optimistic. Europe, California, New Zealand and Korea have undertaken important improvements to their emissions trading systems, while in China, Mexico, Colombia and other Latin American states, momentum is building towards launching market mechanisms.
As a reality check against the growing optimism, our survey finds that our members believe there is still a gap between current trends and the Paris Agreement’s goals. Further action needs be taken and ambition needs to be raised, if we are to limit the temperature rise to well below 2°C.
The Talanoa Dialogue, convened by the COP presidency to share stories on climate ambition, represents a first chance to discuss ‘how do we get there?’. In our first input to the dialogue, we outlined our vision for how carbon markets can help closing that gap. Recently, we launched IETA’s Talanoa Stories, an ongoing project in the run up to this year’s UN climate talks to showcase stories from our members about how markets are helping them drive climate ambition and implement real changes. We will be adding to the portfolio throughout the year, so keep watching! We hope these stories will inspire others to take action and join our members’ efforts to close the ambition gap.
Stay tuned to find out more!
Stefano De Clara
International Policy Director, IETA
For more information on IETA and our work, see www.ieta.org