This transcript has been generated using machine learning technology. While this technology was trained with CIBC terminology, it may contain errors.

Tom Heintzman: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I’m your host, Tom Heintzman. Please join me as we explore today’s most pressing issues with special guests that will give you some new perspectives and help you make sense of what really matters.

Bo Qin: “Carbon markets in general, they don’t operate in vacuum. So complementary technology and climate policies do affect carbon market significantly. And they typically work together with national, international and regional policies.”

Tom Heintzman: Welcome to our multi-part series on carbon dioxide capture and removal in the carbon markets. Throughout this series, we will examine key issues impacting the compliance and voluntary markets and how participants are navigating this landscape in response to evolving policies.

On today’s episode, we’ll explore the current state of voluntary and compliance markets, the challenges impacting market growth, and the drivers and price outlook for North America and global carbon markets in 2025 and beyond.

Please welcome my guest, Bo Qin, the head of American Environmental Markets and Weather Analysis at Bloomberg New Energy Finance. Since joining Bloomberg in 2015, Bo has held various positions, including lead carbon market analyst and has led BNEF’s European Utility Strategy Research. She’s currently based out of New York, where we’re speaking to her from. Welcome, Bo, and thank you for joining us on the show.

Bo Qin: Thank you, for having me, Tom.

Tom Heintzman: Bo, it’s very timely to be talking with you today as CIBC is hosting its third annual carbon summit on October 23rd. And your insights on the latest developments in the carbon markets will provide some key context to summit participants and for our listeners. I’m wondering whether you can start by providing a brief overview of the state of the voluntary and compliance markets today. What are the top trends that you’re observing?

Bo Qin: Sure thing. Indeed, carbon markets have become a real hot commodity today. Carbon markets have expanded like a raw egg on a hot frying pan. Just looking at the compliance carbon markets, we have seen the number of markets increase significantly to 38 compliance carbon markets covering around a fourth of global emissions driven by national net zero targets.

The traded value for the global carbon markets have also surged over a billion US dollars last year. And this is five times the value it has been five years ago. So you can really see the enormous growth in this area. And in North America, where we are, the past couple of years have also been particularly exciting.

So US. hit an above 70 US dollar mark, which is the highest level we’ve ever seen before. And it also survived a repeal ballot highlighting that carbon markets can provide a stable price signal for energy transition despite the broader political trends. Beyond America’s in Europe, in China, we have also seen new sectors being covered by carbon markets like industries in China and also shipping in Europe.

But it’s not only the compliance carbon markets breaking the news. So we have seen also voluntary carbon marks building momentum, particularly between 2018 and 2021, filled by the net zero target growth, similar to those national net zero growth, but also consumer awareness and investor interest. As a result, we’ve seen the carbon credit issuance reaching all time highs in 2021.

But since then, have seen concerns around oversupply, credit quality and integrity leading to offsets, losing buyer interest. But this year, we are expecting market to shift significantly towards a more integrity oriented and a more interoperable market. So I’d say the main trends to watch globally across voluntary and global compliance carbon markets will be market reforms, expansions and market linkages.

Tom Heintzman: Bo, I’m going to guess that a lot of that news catches some listeners by surprise, just given the perception in North America that carbon markets are stumbling, yet there has been such a big growth over the last, call it five years globally, both in terms of number of countries that are putting in place carbon pricing and volumes. But nevertheless, there are some challenges ahead. What challenges do you see and what impact are these having on market growth overall.

Bo Qin: Thanks, Tom. That’s a really good question. So carbon markets as policy markets have risks and volatilities, but similar to other commodities, you can look at it from supply and demand perspective. So looking at the demand side, many drivers can impact emissions or demand for carbon markets. For compliance markets, demand is more dependable.

But complementary policies like fuel standards, but also technology advancements or macroeconomy trends can change the trajectory. For offsets, we have an additional layer of challenge as most of the demand is, as the word says, voluntary. So it may carry a cyclical trend. When the business is going well and ESG is trending, there is more offset demand. When that’s not the case, the demand can be more threatened.

On the supply side, many compliance markets have been going through major reforms and are still in the process of implementing them. These create supply uncertainties that can be hard for market participants like compliance entities and investors to navigate.

EU will see many big design elements to be assessed and coverage for areas like waste and international aviation reopen for discussion. California still needs to get its design completed to align with the 48 % by 2030 compared to 1990 levels. There is also this challenge of program existence itself.

California recently extended its program from sunsetting in 2030 to 2045. It took much more effort than the market expected, but we finally got there. There is still a federal executive order and above all US carbon markets challenging the state climate policies. So the era of uncertainties is not over yet. And we could get another targeted lawsuit on these carbon markets.

In general, the continuity of policy markets is really important because it’s essential to have the certainty to direct long-term strategies, investments and risk management. For offsets, we have seen that the policy risks are more related to the integrity standards and how offsets have increasingly been seen as national assets, leading to countries being discouraged from fully opening the markets to supply credits, particularly in the nature-based solutions area. The development of quasi-compliance markets like CORSIA and Article 6 is also creating another layer of risk to the mix.

Although these create enormous potential in terms of increasing robustness, efficiency and scalability to the market, but they do add the extra layer of risk as well.

Tom Heintzman: Well, you mentioned CORSIA in Article 6. Some of our listeners may not be familiar with either of them. Could you just give a short explanation of what CORSIA is and what Article 6 is?

Bo Qin: Yeah, of course. So CORSIA is UN’s offset program for international aviation. It aims to reduce our offset emissions above a baseline to make sure that international aviation does not increase the pollution on the baseline of 2019. This is really important because aviation is a response to 3 % of global emissions and they are a really hard to abate sector. So we need a program that is robust and is efficient to reduce emissions in this sector as well.

Article 6 is a global carbon market that allow different countries and different regions to trade international emission mitigation outcomes with each other. And also this program will create a platform for countries and regions to [trade]credits with each other, very similar to the clean development mechanism back in the day for UN, but in a more robust and a high quality manner.

Tom Heintzman: Great so I’m hearing, even though the carbon markets have been around for a while, there’s still a fair bit of growth going on in the EU, policy framework still developing and even new markets being considered for regulation. California has to deal not only with amending or updating its program in order to extend it, but also dealing with federal challenges. And then the new CORSIA and Article 6 markets. So there’s still quite a bit going on. What drivers do you see affecting the North American carbon markets most in 2025? For instance, we’re hearing a lot of news about compliance market reforms and linkages, linkages between various carbon markets. Is that something that we should be on the look for in 2025 or are there other factors that you would point to as being more prominent in 2025?

Bo Qin: Yeah, it really, really got the point there. It’s the market reforms and linkages, but they’re also linked with each other, the reforms and linkages. The major markets right now are in North America are going through reforms. So the regional greenhouse gas initiative, it’s the power market based compliance carbon market here in Northeast US. It just finished its third program review that tightens the cap significantly. It also introduced new cost containment elements as well as phased out offset allowance. California is the next critical market. It’s changing the market to align with the net zero by 2045 target, which includes a supply cut of 180 million metric tons by 2030.

The reform has been delayed, but once implemented, it will push the carbon price upwards significantly. And this creates not only opportunities for industries, but also investors. Meanwhile, Quebec, linked with California, has been waiting for California to finish its reform before moving forward with its own. And that’s the same for Washington state.

This is what I mean when I said the linkages are linked with the reforms. The Washington state is really looking forward to linkage with California because the linkage is their main affordability play. It’s linkage in general is very important for markets, particularly these markets that are more regional and is smaller than, for example, the markets in Europe. It’s important because the larger the market, the better the liquidity, market stability and also the small carbon leakage. The carbon leakage means that the emitters won’t move to another region and continue polluting while avoiding carbon costs. UK and EU are also exploring similar linkage. And this linkage would bring stability to those markets as well. And it’s largely applauded by industries and financials alike.

For carbon credits, the main opportunities we see there is that the core carbon principle or CCP aligned credits has stricter quality standards are becoming the baseline rather than the exception. And this will build credibility and interest in offset market. Also, another main opportunity in the offset market is that voluntary market is increasingly interacting with compliance markets.

We talked about CORSIA, we talked about Article 6, but we have seen also more offsets being integrated into existing regulated frameworks, for example, compliance carbon markets that are going through reforms right now. EU and UK are looking into allowing offsets in their existing emission trading schemes. California is going to bump up their allowance for offsets.

All of this is providing more demand certainty and diversification for offsets.

Tom Heintzman: Bo, that’s fascinating. There’s a lot going on clearly. And in particular, the linkages between the regulated compliance markets where heavy emitters are required by law to trade or to purchase rights with the voluntary markets, the overlapping and the starting to intermingle of those two will certainly be something to watch in the year going ahead.

I didn’t hear any mention of the IRA, which is as most of our listeners will know, was a large policy in the United States that incentivized all sorts of renewable energy and carbon reduction activities.

Where do you see the IRA and subsequent legislation going in the United States? Is there any follow on from that that we should see over the course of the next year or two?

Bo Qin: Yeah, definitely. That’s a very good question. Carbon markets in general, they don’t operate in vacuum. So complementary technology and climate policies do affect carbon market significantly. And they typically work together with national, international and regional policies to get to the targets they have set.

For example of the national support is what you mentioned, the Inflation Reduction Act, so IRA tax credit for clean energy. They lower the cost of low carbon technologies, make it easier for capped entities to deploy real reductions that carbon markets can then recognize or build upon. So we actually do price outlooks that we may touch upon later on, that have been changed significantly due to the IRA changes. Due to the rollback of IRA, we see now that carbon markets have to do a significantly bigger heavy lifting to get to the same targets we have set before IRA’s rollbacks.

Beyond IRA, we also have state policies like 100 % cleaner electricity mandates. That’s currently at least in California, New York and Washington, where we also have regional compliance carbon markets. These can fill in some of the gaps that IRA rollback have left and they can also help to strengthen those long-term investment signals. Then internationally we also have policies like carbon border adjustment mechanism that can create some incentives for industries, particularly those that export outside of the domestic market to reduce emissions to align with the emission targets set in their exporting countries.

So overall, the complementary policies are really important and they operate alongside the compliance, but also voluntary carbon markets to ensure that emission reductions happen.

In an ideal world, they should help each other because right now a lot of carbon markets are actually talking about the challenge of affordability and having complementary policies would help addressing the challenge of affordability in a significant manner. But also other way around. So if we have other policies that have been making affordability more challenging carbon markets can also help because at the end of the day, carbon market is not a tax but rather a reallocation of funds. So it can raise revenues to help those most affected by energy transition but in a negative way, for example, by providing electricity bill rebates or providing other kind of social cost fund that can help those groups.

Tom Heintzman: It’s been a great conversation. We covered a lot of ground. There’s still a lot of areas that I would love to dig into. I would love to dig into the affordability of the carbon markets going forward. There’s a whole angle about Quebec being part of the California and Washington, which for Canadians is interesting. We only have time for one more question. So maybe it’s the last question. I’d like to talk about the price outlook going forward.

Projecting out over the short and medium term, how do you see the carbon market prices evolving in response to the policies, trade and other dynamics that we’ve discussed so far here today?

Bo Qin: So we do annual price forecast or outlooks for our main markets and we do so based on supply, demand and technology costs. We use a so-called marginal abatement cost curve to provide this price forecast. So we use the lowest cost of technology when it’s available before moving up this abatement cost curve.

So for EU, the biggest carbon market right now, we expect the price to move from the current 78 euros to 88 euros in 2026. And we expect the price to move higher to 147 by 2030 and up to 185 in 2035. And this is mostly driven by the ambitious FIT for 55 package and the rapid cap decline combined with decreasing free allocation due to CBAM and also the continued withdrawal by the market stability reserve.

For California, Quebec, we expect the prices to move from the current 32 US dollars to 37 US dollars next year and all the way heading up to 68 by 2030. This is driven by the expected implementation of the market design reform next year, tightening the market, but also the expected increase of emissions due to IRA and rollback, as well as the limited cheap abatement options in the region.

Offsets instead of having a base case like for compliance markets. We have multiple scenarios. We have a voluntary market scenario where the demand is mostly voluntary and the prices are pretty depressed below 15. Then we have a bifurcation scenario where we have a low and a high quality market and also a removals on this scenario.

The removal scenarios will see prices close to 150 US dollars in 2030, similar to the prices we see in Europe. And as for CORSIA, we expect the prices to fall from the current lower 20s to below $15 handle. And the key piece here is that we are assuming that we get the source countries authorization to unlock the additional supply. This is a quite interesting market because we expect prices to head up in 2027 to reach $97 per ton in 2027, the first year when the phase two start for the programme. And this is also dependent on whether in phase two we will get the additional countries, particularly Russia, China and India to join this programme.

Tom Heintzman: Well, we’ll watch with fascination We covered a lot of ground and I appreciate you taking the time and thanks to our listeners for tuning in.

Bo Qin: Thank you.

Tom Heintzman: If you’d like to learn more about how your business can navigate and participate in carbon dioxide removal in the carbon markets, please join us for CIBC’s third annual carbon summit on October 23rd, 2025 in Toronto. The summit brings together global experts across the carbon value chain to examine project development, innovative financing mechanisms, and the transformation of carbon markets and technologies in response to evolving policies. To register, please contact your CIBC Relationship Manager. Please join us next time as we tackle some of sustainability’s biggest questions, providing you different perspectives to help you move forward. I’m your host, Tom Heintzman, and this is The Sustainability Agenda.

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Global carbon markets: Poised for growth amid market reforms and integration

Tom Heintzman

MD & Vice-Chair, Energy Transition & Sustainability

CIBC Capital Markets

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