Carbon pricing: what decision-makers should watch

The EU Emissions Trading System has priced CO2 emissions from power and industry since 2005.

For executives, the main question regarding “Carbon pricing” is their own exposure: which costs, revenues and financing conditions depend on it, directly or indirectly?

A proven approach is to run scenarios and monitor leading indicators regularly. That puts decisions on a solid footing without reacting to every headline.

Several forces are at work in “Carbon pricing”: the interest rate environment, domestic and foreign demand, regulation and, not least, market participants' expectations. None of these can be viewed in isolation.

Risks include unexpected political decisions, supply chain disruptions and abrupt shifts in financial market sentiment. Opportunities arise where companies respond early to changing conditions.