The COVID-19 pandemic and climate change are the global crises of our time. The virus has affected every corner of the world, but so too has the climate crisis, with year-on-year record temperatures driving a host of very visible, intensifying impacts, among these the extraordinary and tragic wildfires in Australia, California, and the Arctic Circle. Both crises threaten our public health, our environ-ment, our economies, and our ways of life. They highlight the value of transparent, evidence-based information for decision-making and demonstrate the benefits of working together – in our commu-nities, businesses, institutions, and governments. They also teach us that while facing challenges can pose risks and hardships, it also spurs creative and innovative solutions, and provides opportunities to create a safer, healthier, fairer, and more prosperous world. 

In facing the economic shock of the pandemic, carbon markets have demonstrated remarkable resilience. Since spring 2020, the pandemic has impacted economic activity, reducing both emissions and demand for emissions allowances. Carbon markets reacted rationally as prices and auction volumes initially dropped. However, after a period of volatility, they stabilized, and allowance trading soon returned to pre-pandemic price and volume levels. This shows that the underlying structures of markets are sound and can foster resilience to external shocks, enabling market actors to react ratio-nally, both to short-term signals and longer-term perspectives. 

This is a different story compared to the global financial crisis, the last major external demand shock to hit carbon markets, which exacerbated structural surpluses, suppressed prices, and under-mined confidence in emissions trading. ETS policymakers reflected on the lessons of the past decade and worked to improve the design of their systems by building increasingly sophisticated market stability elements into their regulations. These reforms have also been embedded in overarching policy frameworks, more ambitious 2030 targets, and long-term net-zero commitments, giving market actors confidence in the longevity of the policy. 

Over the last years, a spectrum of innovative market stability mech-anisms have been designed and implemented across major ETSs around the world, including auction floor prices, market stability reserves, and emissions containment reserves. They are trans-parent and predictable rule-based mechanisms, devised to ensure orderly market functioning by adjusting the supply of allowances and moderating undesirable price effects in response to external shocks or structural imbalances. These technical design features give market participants confidence in the carbon market by miti-gating price volatility and supporting long-term trends in price development. 

Anchoring an ETS within a robust framework with clear and ambi-tious policy targets further increases certainty, fostering resilience and longevity of the instrument. Having the role of ETS articulated in a policy mix and an overarching strategy to reach emissions targets offers a political and legal mandate for action. In particular, ambi-tious 2030 targets send a clear message that markets will need to provide a sufficiently strong and credible price signal to drive signifi-cant abatement and stimulate low-carbon investment. 

Today, the number of jurisdictions announcing net-zero climate targets is on the rise, anchoring these commitments in high-level political pledges and/or legislation. National net-zero targets are catalyzed by the urgent need to align policy action with the goals of the Paris Agreement. Net-zero legislation has been passed or is currently under discussion in several key jurisdictions, including the European Union, France, Germany, Spain, Sweden, the UK, Republic of Korea, and New Zealand. Other key ETS jurisdictions such as California, Tokyo, and some RGGI states have explicitly set climate neutrality goals through executive orders or within policy documents. High-level political pledges have also been made by climate giants China, the US and Japan. This is truly encouraging, as achieving these net-zero targets will start to bring the Paris Agree-ment goals within reach.