If Carbon Emission Allowance Rises to $75 per Ton, Global Stock Markets Plunge 20%

Analysis of Dutch Asset Management Firm Kampen

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] An analysis has suggested that if the price of carbon emission permits suddenly rises to $75 per ton, the global stock market could drop by up to 20%.

Kempen Asset Management in the Netherlands analyzed the impact on the global stock market assuming a sharp surge in carbon emission permit prices due to regulatory or institutional changes. Kempen considered a scenario where the carbon emission calculation standard expands to Scope 3, causing the permit price to suddenly rise to $75 per ton, and concluded that stock prices could fall significantly.

The standards for calculating carbon emissions are divided into three scopes. Scope 1 accounts only for direct carbon emissions generated during the product manufacturing process. Scope 2 includes indirect carbon emissions from the electricity used in production. Up to Scope 2, only emissions within the manufacturer’s internal production process are considered, but Scope 3 requires calculating carbon emissions generated externally, such as those produced when consumers use the product.

According to the analysis model developed by Kempen Asset Management, applying only Scopes 1 and 2 results in a stock price decline of about 4%. However, when Scope 3 is included, a sudden rise in carbon permit prices to $75 per ton could cause a sharp drop in the global stock market.

Kempen Asset Management estimated that the U.S. stock market would suffer a greater impact than the European stock market. If carbon permit prices rise to $75 per ton, the U.S. stock market could fall by up to 27%, while the European stock market decline is expected to be limited to 15.4%. The overall decline is estimated to be up to 20%. Kempen also analyzed that if carbon permit prices reach $150 per ton, the global stock market could drop by as much as 41%.

The EU carbon permit price surpassed €50 per ton (approximately $59.21) for the first time last month, more than doubling compared to before the COVID-19 pandemic. With the Biden administration in the U.S. and Europe accelerating green policies, carbon permit prices are expected to rise further.

Kempen stated that this estimated decline assumes a sudden increase in carbon permit prices. If prices rise gradually, the impact on the stock market would be much smaller.

However, Nikesh Patel, investment strategist at Kempen Asset Management’s UK office, pointed out, "The risk of stock price declines due to rising carbon permit prices is underestimated," adding, "The stock market will be exposed to risk factors never seen before."

According to the World Bank, there are currently 64 carbon tax-related systems worldwide. However, the carbon emissions covered by these 64 systems account for only 21.5% of global greenhouse gas emissions. This means that 80% of current greenhouse gas emissions are released without any associated cost. Accordingly, the International Monetary Fund (IMF) has stated that to achieve the greenhouse gas reduction targets agreed upon in the Paris Climate Agreement, it is necessary to establish a long-term global emissions trading market.

This content was produced with the assistance of AI translation services.