😏 Size isn’t everything…

⭐ In fact, when it comes to CDR in carbon pricing systems, quality > size every time.

📊 Having analysed the 17 most high potential compliance markets, I recently argued that CDR eligibility alone tells us little about actual market potential - see comments.

👉 Today, I want to draw attention to another factor: size.

🏭 Let’s take two extremes to illustrate the point: China’s emissions trading system (ETS) is - by far - the biggest in the world, covering almost 8Gt or 15% of the world’s (!!!) emissions. The United Kingdom’s ETS, on the other hand, covers only 110Mt or 73x smaller than China’s.

📈 Still, when it comes to the potential for CDR in the next decade, the UK arguably beats China. 

Why?

🤑 Maturity and design, and their impact on the factor I focused on last week: price.

🇨🇳 China’s ETS is intensity-based. This means companies can get additional free allowances and often face almost no compliance costs at all. China's offset market (CCER) only relaunched in 2024 after a six-year suspension. Given the lack of a cap in the system, the role for CDR as a compliance tool vanishes. 

🇬🇧 The UK’s ETS spun off the EU ETS in 2021. It draws on almost two decades of experience and market credibility. Further, the government has already published concrete plans for the integration of durable CDR.

💱 Finally, yes, China's carbon price sits around €12/t. The UK's is closer to €50.

🏆 All to show that quality > size every time.

🤔 Do you agree? How do you look at the potential of various ETSs?

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