KBRA Releases Carbon Series: Cap-and-Trade Primer (North America and Europe)

KBRA UK (KBRA) releases an overview of the mechanics of cap-and-trade programmes in North America and Europe. As the effects of climate change intensify globally, nations are under a growing pressure to limit greenhouse gas (GHG) emissions, which are leading to global warming and increasingly severe environmental effects. The Paris Agreement commits the 194 countries that have ratified the pact to limit global warming to 2°C and, ideally, closer to 1.5°C. For most countries, a carbon pricing mechanism will be an important feature of their efforts to limit GHG emissions.

In this report, KBRA provides an overview of the cap-and-trade programmes in Quebec, Nova Scotia, the US Regional Greenhouse Gas Initiative, California, Oregon, Washington, the EU, and the UK. As more countries and specific regions enact carbon pricing mechanisms, this forebodes far-reaching credit implications for issuers operating in carbon-intensive sectors. Carbon pricing schemes may impact issuers across all industries as they mature and coverage is expanded. For sovereign and sub-sovereign issuers, it can be difficult to assess the exact impact on ratings. However, to the extent these regions reduce climate risk exposure and spur technological innovation, the net benefits may exceed the steep cost of cap-and-trade implementation.

Click here to view the report.

Related Publications

• Carbon Pricing and Its Potential Credit Impact
• Key Climate Commitments by Country: A KBRA Primer
• KBRA Launches Carbon Transition Risk Metrics—Carbon Quantum (KCQ) Ratios

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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