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Sustainable investing
21 Nov 2021

Can carbon markets reduce carbon emissions?

Global leaders are meeting right now in Glasgow for COP26. The official goal of the conference is to secure global net-zero by the mid-century and keep 1.5 degrees within reach. 

For people wanting to keep up to date with the conference, this BBC article is an excellent resource and provides a look at What is COP26 and what was agreed at Glasgow climate conference. It provides a real-time description of what's happening and why it matters.

Negotiations are ongoing but we will be particularly interested in commitments being made by all countries to implement a carbon tax. A carbon tax would increase the cost of carbon and make it more expensive to pollute. Increased carbon pricing provides an incentive to reduce energy use and shift to cleaner fuels.

The cost of carbon has increased significantly over the past year, both in New Zealand and internationally. However, only about 20% of global emissions are currently covered by a carbon pricing scheme. Because of this, the average price is only about $3 a ton, well below the global carbon price of about $75 a ton needed to motivate companies to change. This easy to understand video from The Economist provides an overview of carbon markets, the challenges they currently face and how to improve them to get serious about climate change.

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