Assessment of private sector anticipatory response to greenhouse gas market development

Greenhouse gas emissions permit price expectations are already playing an important role in influencing current energy and environmental policy makers. This paper discussed the challenging task of predicting true carbon prices for environmental and energy analysis. The wide range of future prices for global greenhouse gas reductions that are suggested by current econometric models depend on their abilities to accurately mimic future markets, to capture the cost effectiveness of global carbon trading markets, and to account for other factors such as economic growth rates and the rates of technological change. This study assesses the price and risk expectations of different corporate market players and examines their response strategies. Interviews were conducted with representatives of 35 companies in Canada, the United States, Japan, the European Union and Russia. Price expectations are just over $5 per tonne of carbon dioxide equivalent in 2005 (pre-Kyoto period). By 2010 (mid-Kyoto period) the price expectation is $11 per tonne. Most companies presumed that the Kyoto Protocol will come into force in 2002. Some concerns were expressed regarding barriers that could prevent prices from becoming fully efficient, such as poorly harmonized or delayed national policies, or the potential transaction costs of the Clean Development Mechanism. It was noted that as emission targets grow more stringent, prices may go higher and markets will begin to operate more efficiently. 40 refs