Carbon pricing appears to be a widely accepted tool of internalization of negative effects of GHG emissions. It allows for utilization of market forces in reducing these emissions. Carbon taxation and carbon trading have their pros and cons, yet more and more countries are applying them. In most cases, the process is at an early stage, and carbon prices will need to go up significantly.

Investors will see increasing application by companies and governments of carbon pricing schemes and CBAMs. In most cases, valuation models will have to accommodate payments for carbon. It will also be important for investors to understand the quality of carbon offsets used by companies and engage with the management to adjust their policies and approaches if needed.

This brief provides guidelines for investors and will help our audience navigate through the emerging carbon pricing mechanisms. We encourage investors to keep abreast of the rapidly evolving regulatory and market environment.