It was bound to happen. Indeed, the intent, design and goal of carbon emissions trading was supposed to be its own ultimate demise – as the world leaves fossil fuels behind, demand and pricing for tradable carbon emissions should fall. According to Clean Energy Wire, Germany announced exactly that:
“Germany’s weakened industrial sector coupled with the expansion of renewable energy sources have resulted in a record drop in the country’s greenhouse gas emissions traded in the EU Emissions Trading System (EU ETS) in 2023, according to the German Emissions Trading Authority (DEHSt), part of the German Environment Agency (UBA)… In 2023, the 1,725 stationary plants in Germany covered by the EU ETS emitted around 289 million tonnes of carbon dioxide equivalents (CO₂-eq) – a drop of 18 percent compared to the previous year and the largest decline since the EU ETS was established in 2005.
Emissions from energy plants fell by 22 percent, and in the industrial sectors they fell by 10 percent. ‘The significant decline in emissions in the energy sector is a big step towards achieving our climate protection goals,’ said UBA president Dirk Messner. ‘This is mainly due to the expansion of renewable energy sources and the decline in coal-fired power generation.’ In the industrial sector, however, the falling emissions are mainly due to the decline in production resulting from the effects of Russia’s war against Ukraine.”
I doubt this is really the end for carbon emissions and credits in Germany – it is just a dip in a highly dynamic system. Even so, there is good news and bad news. The good: fossil fuel emissions in Germany are falling and market forces are working as expected for carbon credits. The bad: the German government is reaping much less revenue much sooner than expected and businesses expecting carbon credit revenues are also suffering.
ESG leaders, staff and advisors: Remember there is a conflicting relationship between achieving decarbonization and business goals related to credits/offsets. In voluntary carbon markets, expect even greater volatility where decarbonization happens more rapidly than expected. Decarbonization, or perhaps more accurately broad emissions reductions, can happen intentionally and predictably – or as unanticipated systemic shocks. This can impact plans for offsets no matter what role your company plays in that market. Yet another reason to thoughtfully and carefully evaluate your use of credits/offsets.
Our members can find more information about carbon offsets here.
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